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Business rates worth the relief?

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Business rates relief has been extended for the retail, hospitality and leisure sector but, with the rate of discount cut from 75% to 40%, many English businesses will face a near doubling of their rates bill for 2025/26.

Next year’s changes for 2025/26

Retail, hospitality and leisure properties not qualifying for small business rates relief currently receive a 75% business rates discount, subject to a cap of £110,000 per business. This relief is to continue for 2025/26, but with the rate of discount cut to 40%:

  • A business rates bill consists of a property’s rateable value multiplied by a multiplier.
  • For 2025/26, the small business multiplier (rateable value below £51,000) is again frozen at 49.9p. This covers over a million properties in England.
  • The standard multiplier (rateable value £51,000 or more) is being uprated from 54.6p to 55.5p.

On the one hand, businesses will be relieved that the business rates discount will not cease altogether on 31 March 2025. However, on the other, they will be disappointed with the level of replacement discount.

Property will typically qualify for the 40% discount if the business is mainly being used as a shop; restaurant, café, bar or pub; cinema or music venue; or gym, spa or hotel.

2026/27 onwards

With the aim of implementing a fairer system of business rates, permanently lower multipliers will be introduced for retail, hospitality and leisure properties with a rateable value below £500,000:

  • This reduction will be funded by a new higher multiplier for properties with a rateable value of £500,000 or higher.
  • The higher multiplier will include most large distribution warehouses, including those used by online retailers.

The Government will also be consulting on other areas for reform. For example, where the presence of cliff-edges in the system acts as a disincentive to expand.

There are currently no details yet of any discounts for property in Scotland, Wales or Northern Ireland, nor have multipliers been announced. Welsh retail, hospitality and leisure property currently benefits from a 40% discount.

Details of the business rates reliefs currently available in England can be found here.

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Business rates relief: extensions and cuts

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Last November’s Autumn Statement included a package of measures to help alleviate the burden of business rates in England and on the Scottish islands, but Wales won’t be so fortunate.

75% relief rules

Retail, hospitality and leisure properties that do not qualify for small business rates relief currently receive a 75% business rates discount, subject to a cap of £110,000 for each business. This relief is to continue throughout 2024/25.

Property will typically qualify for relief if the business is mainly being used as a:

  • Shop;
  • Restaurant, café, bar or pub;
  • Cinema or music venue; or
  • Gym, spa or hotel.

There is an equivalent scheme for Welsh retail, hospitality and leisure property, but for 2024/25 the discount has been reduced to 40%. There is no equivalent relief for Scottish or Northern Irish business property. However, Scotland has announced a new 100% relief for hospitality businesses situated on the Scottish islands.

Multipliers

A business rates bill consists of a property’s rateable value multiplied by a multiplier (or poundage). For 2024/25, the small business multiplier (rateable value below £51,000) is again frozen at 49.9p. However, the standard multiplier (rateable value over £51,000 or more) is being uprated by 6.7% to 54.6p.

Given inflation has now dropped to 3.9% (November 2023), the 6.7% increase for the standard multiplier is not going to be favourably received.

  • Scotland: The basic multiplier has been frozen, but higher value properties will see poundage increased by 6.7%.
  • Wales: The multiplier will see an across-the-board increase of 5%. This will be painful for smaller businesses, especially as the Welsh multiplier at 56.2p is the highest in the UK.
  • Northern Ireland: No announcement as yet, and, in any case, rate poundage varies across council

To summarise the various outcomes:

England Scotland Wales
RV below £51,000 RV £51,000 or more RV up to £50,000 RV £51,001 to £100,000 RV £100,000 or more
Retail, hospitality and leisure relief (all subject to a cap of £110,000) 75% 100% (islands only) 40%
Multiplier 49.9p 54.6p 49.8p 54.5p 55.9p 56.2p

Details of the various business rates reliefs available in England can be found here.

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The Ofgem price cap returns

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From 1 July, the energy price cap set by energy regulator, Ofgem, will fall from £3,280 to £2,074. Prices are currently capped at £2,500, but this further reduction will help home-based employees and any small business owners who work out of residential accommodation.

In October last year, the government introduced a temporary energy price guarantee that has limited the annual gas and electricity costs for a typical household. This cap was set to increase from £2,500 to £3,000 this July, however, the lower energy price cap of £2,074 will now apply instead.

Impact of the cap

The energy price cap is set quarterly, so the limit of £2,074 will apply from 1 July to 30 September 2023.

  • Customers on standard variable tariffs with typical consumption will see their bills fall in line with the cut in prices.
  • However, annual bills are not capped as such. Households with higher energy use will pay more than the cap, with lower energy users paying less.

The £3,000 energy price guarantee will remain in place as a safety net until 31 March 2024 just in case energy prices increase above this level.

Even with the price reduction from 1 July, energy prices will still be almost double what they were before costs started to soar.

Fixed energy deals

There are virtually no fixed energy deals currently available, although they might return now that prices have started to fall.

The energy price cap is forecast to remain around £2,000 until March 2024, so any fixed rate deal must be compared to this rate. A fixed rate deal will provide certainty, but the downside is being locked in for a fixed term should prices fall. An exit fee – which can be quite substantial ­– is normally charged to end a fixed deal early.

A government briefing of the energy price guarantee and how it operates alongside the energy price cap can be found here.

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Business rates revaluation in 2023

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From 1 April 2023, business rates in England and Wales will be updated to reflect changes in property values since the last revaluation in 2017. Although many businesses will see increased bills, others will see reductions. A package of targeted support will help with the transition.

The revaluation is based on April 2021 rental values, a time when the property market was seeing significant turbulence. Not surprisingly, there will be considerable fluctuation between areas. For example, in London, the estimated change in rates bills payable across sub-markets range from a decrease of 11% in Victoria, to an increase of 34% in Clerkenwell and Farringdon.

The changes target the ‘bricks vs. clicks’ tax imbalance between physical and online businesses by substantially raising the business rates bills for big warehouse operators, but limiting rises for many high street retailers, restaurants and pubs.

Business support package

A support package has been announced to help business rate payers affected by the revaluation.

  • Business rates multipliers will be frozen for a further year, keeping them at 49.9p (small business) and 51.2p (standard) for 2023/24.
  • For 2023/24, retail, hospitality and leisure properties not qualifying for small business rates relief will receive a 75% business rates discount, subject to a cash cap of £110,000 per business. Relief is only 50% for the current year.
  • The downwards transitional relief caps will be abolished so that a business with a decreased rates valuation for 2023/24 immediately benefits from the full reduction on their bills.
  • For businesses with higher rates bills for 2023/24 as a result of the revaluation, upwards transition caps will limit the increase – these are set at 5%, 15% and 30% for small, medium and large premises respectively.
  • There will be protection for small businesses who lose eligibility (or see reductions) for either small business or rural rate relief due to the updated valuations. Bill increases will
    be capped at £600 for 2023/24.

The government’s business rates valuation service, which shows a business’s updated rateable value for 2023/24, can be found here. Any revisions for Scottish businesses are expected in the Scottish Budget on 15 December.

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Business rates loophole on second homes closing

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Owners of holiday lets and second homes in England have been able to avoid council tax by registering their properties as businesses. However, from April 2023, small business rates relief will only be available if a property is let out for a minimum of 70 days a year. If you let out a second home, you may want to start planning now.

In the vast majority of cases, registering a property as a business has meant that small business rates relief is available, meaning no business rates are payable. Business registration has been possible for properties available to let for 140 days or more in a year, even if little or no realistic effort is made to attract lettings.

Changes from 1 April 2023

To benefit from business rates after next April, owners will have to:

  • Prove that a property is available as self-catering accommodation for 140 days a year, with this test met for the coming year and also the previous year; and
  • Actually rent out the property as self-catering accommodation for a minimum of 70 days a year.

It will be necessary for property owners to provide evidence, such as the website or brochure used to advertise the property, letting details and receipts.

Wales already applies similar criteria, with Scotland making changes from April 2022.

For the purpose of accounting for those 70 days, both council and business rates look at the property’s status at the end of a day. For example, if a property is let from Friday evening to Sunday morning, it is treated as let for two days using the occupancy for the Friday and Saturday nights.

New lets

There are no special rules being introduced for newly available lets, so a new let will be liable to council tax until the property has been available for 140 days and actually rented out for 70 days. Business rates will not be available until both criteria are met, subject to the property being advertised as self-catering accommodation for 140 days in the coming year.

The government’s press release on closing the tax loophole on second homes can be found here.

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New Covid-19 business support package

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A new support package has been announced to assist businesses impacted by the Covid-19 Omicron variant. Applications are open to the end of February, but many have said the measures don’t go far enough given the extensive losses suffered in the hospitality and leisure sectors over the festive period.

Although no businesses were legally required to close when the move to Plan B was announced in December, the use of face masks was extended, Covid-19 passes required for some venues and people encouraged to work from home. Combined with advice to limit socialising, these measures led to dramatic falls in the number of people going to pubs, restaurants and shows.

Business grants

Around 200,000 businesses in the hospitality and leisure sectors in England, such as restaurants, hotels and pubs, are eligible for one-off grants of up to £6,000 on a per-property basis. Businesses must be solvent to qualify. The amount of grant is dependent on the property’s rateable value.

 

Rateable value Amount of grant
Up to £15,000 £2,700
£15,001 to £51,000 £4,000
Over £51,000 £6,000

The scheme will close for applications on 28 February, with payments made by 31 March at the latest.

Grants may well be paid automatically, but you should keep an eye on your local authority’s website just in case you need to register to apply. The Chancellor has so far refused to bring back any form of furlough, and – based on previous experience – grants may not be paid to businesses for several weeks.

Extra funding has been made available to the devolved administrations so they can provide similar support.

Some £100 million of discretionary funding has also been provided for English local authorities to support other businesses, such as those who supply the hospitality and leisure sectors, so keep checking your local authority’s website to see what may be on offer as some may allocate funding on a first-come-first-served basis. Additional funding is available to support theatres, museums and orchestras.

Guidance on the new local authority business grants can be found here.

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Positive news for business rates from the Chancellor

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The Autumn Budget announcements included a series of measures to alleviate the burden of business rates in England. For 2022/23, 50% relief will be available for eligible retail, hospitality and leisure properties, and the business rates multipliers will again be frozen.

2022/23 measures

The business rates multipliers for the current year have already been frozen at 2020/21 levels, and this measure will continue until 31 March 2023, keeping the multipliers at 49.9p (small business) and 51.2p (standard).

Many businesses already pay no business rates due to small business rates relief, and retail, hospitality and leisure properties currently benefit from a 66% discount. For 2022/23, retail, hospitality and leisure properties not qualifying for small business rates relief will receive a 50% business rates discount, subject to a cash cap of £110,000 for each business.

Eligibility for the 2022/23 50% discount will not be as wide as the current 66% discount, although detailed guidance has not yet been published.

Longer term

The Budget announcements are a far cry from the hoped-for radical reform of business rates, although a raft of other measures effective from 2023 will help over the longer term. These include:

  • Revaluations to take place every three years starting from the next revaluation in 2023 (recently, the interval has been longer than the scheduled five years);
  • A 100% improvement relief will provide relief for 12 months from any additional rates charge where improvements increase a property’s rateable value. Most plant and machinery has no impact on rateable value, but the new relief will help, for example, if CCTV is installed or bike sheds added.
  • For green investments, an exemption from higher rates bills will apply where, for example, rooftop solar panels or electric charging points are installed. A 100% relief will also be provided for eligible low-carbon heat networks.

Details of current business rates relief for properties in England can be found here.

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Freeport tax incentives

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Among the development measures the Chancellor announced in the March Budget were eight new freeports in England. These are due to enter operation in late 2021, with each freeport including a defined tax site within which a range of tax incentives and reliefs for businesses will apply. These tax breaks will mostly last for five years.

Discussions are ongoing regarding the creation of freeports in Scotland, Wales and Northern Ireland. Businesses operating within a freeport’s tax site will benefit from several incentives:

  • Enhanced capital allowances – Investment in plant and machinery that is new and unused will qualify for a 100% deduction against profits, regardless of whether the expenditure falls into the main or special rate capital allowances pool. The assets purchased must primarily be for use within the freeport tax site. Relief will be available from when a site is designated until 30 September 2026.
  • 10% rate of structures and buildings allowance – This enhanced rate will mean that investment in non-residential structures and buildings within a freeport tax site will be written off over ten years rather the usual 33⅓-year period. To qualify, the structure or building will have to be brought into use by 30 September 2026.
  • Relief from stamp duty land tax – Land and property purchased in an English freeport tax site and used for a qualifying commercial purpose will benefit from 100% relief, with relief available from designation until 30 September 2026.
  • Business rates relief – Full relief will be available for all new businesses and certain existing businesses where they expand. Relief will apply for five years from the point at which relief is first given.
  • Employer NICs – Still to be confirmed, but the intention is to give full relief from employer NICs for employees working in a freeport tax site. Relief will run from April 2022 (or when a site is designated) to April 2026 but could be extended until April 2031.

The government published a series of questions and answers following the freeport bidding process which can be found here.

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Shaping the future for business rates

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A comprehensive review of business rates is underway in England. The government recently published an interim report, with the final report delayed until autumn. One definite change coming is the closing of a loophole that has allowed people to avoid rates on holiday lets.

The current economic uncertainty has seen the government extending full relief through to the end of June for eligible retail, hospitality and leisure properties in England, as well as freezing the business rates multiplier in 2021/22. From 1 July 2021 to 31 March 2022 the rate falls to 66% in England. The governments of Scotland, Wales and Northern Ireland have extended business rate relief for twelve months. However, many high-street businesses want a more permanent overhaul to business rates to help them cope with the competition coming from online retailers.

Interim findings

The initial consultation, published as part of ‘Tax Day’ on 23 March, found the idea of replacing business rates with a capital value tax is not popular. Responses instead focused on improvements to the current system. For example:

  • Reliefs and exemptions are too complicated.
  • Small business rates relief can be a deterrent to expansion.
  • Empty property rates unfairly penalise landlords.
  • The current system, based around the business rates multiplier, is too inflexible and unresponsive to economic fluctuations.

A common view expressed by respondents is that the complexity of reliefs and the high overall burden create an incentive to attempt avoidance.

Holiday let loophole

Owners of holiday lets and second homes in England have been able to avoid council tax by registering their properties as businesses and therefore subject to business rates. In the vast majority of cases, small business rates relief then means no business rates are payable.

Business registration has been possible if a property was available to let for 140 days or more in a year. This is open to abuse when little or no realistic effort is made by landlords to attract lettings. New legislation will change the criteria so a property must actually be let out for 140 days to receive relief, somewhat stricter than the 105-day furnished holiday letting condition.

The interim report was published alongside a call for evidence, open until 31 October, and both can be found here.

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The Spring 2021 Budget – still some surprises

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A quiet turning of the tax screw.

Just before the Budget arrived on 3 March, it seemed as if the Chancellor would have nothing to say that was not already public knowledge. However, while some of the torrent of leaks were confirmed, none of the pre-Budget pundits correctly predicted the Chancellor’s strategy. Instead of cutting borrowing, Mr Sunak increased it sharply in 2021/22 over the estimates produced just four months earlier in his Spending Review.

The Chancellor’s approach was:

  • To stimulate investment in the next two years with extremely generous allowances. In effect, for every £1,000 a company invests in new plant and machinery, the government will reduce their corporate tax bill by £247.
  • To pay for this largesse and start to repair public finances:
    • From April 2023, when the enhanced investment allowances end, the rate of corporation tax for companies with profits of at least £250,000 will jump by 6%, from 19% to 25%.
    • Many personal tax thresholds, bands and allowances will be frozen until the end of 2025/26.

The big freeze of everything from the pensions lifetime allowance to the inheritance tax nil rate band counts as a stealth tax. Look at the raw numbers and there is no increase in tax – everything stays the same. In practice, the effect of inflation will take its toll. As incomes and wealth rise, thresholds are crossed and tax bands filled more quickly. More people become taxpayers and all taxpayers pay more tax.

A good (or possibly bad) example is the inheritance tax nil rate band, which was set at its current £325,000 level (now running through to 2026) way back in April 2009. Had the band been linked to the CPI inflation index, it would be about £90,000 higher in 2021/22. That difference equates to an extra £36,000 in inheritance tax at the standard 40% rate.

In other words, you may think you were spared higher tax bills by the Chancellor, but that is not necessarily the case. Tax planning is still important and will become more so as the freeze drags on to 2026.

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