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Business rates revaluation 2017: an explanation

On 1 April 2017 the business rates payable in respect of properties in England and Wales will be changing.

Business rates are the tax that businesses pay on the retail, office and industrial premises that they occupy.  The total tax payable by an occupier is based on the rateable value for the premises combined with a multiplier, which is a figure set by government each year.

Although rateable values are usually revaluated every five years, the changes on 1 April 2017 are set to be much more dramatic than previous revaluations and see the rates payable by some businesses soar.

Rateable values are broadly based on the market rent payable for premises.  The steep increases in rent for commercial properties in London and the South East in the past years mean that rateable values are changing significantly.  This is exacerbated by the fact that the revaluation is overdue.  The rateable values currently in force were set in 2010 and based on rents in 2008.  The government delayed the valuation scheduled for 2015, which would have been based on 2013’s rents, and instead the rateable values coming into force on 1 April 2017 will be based on 2015’s rents.  The longer gap between revaluations and the sharp rises in market rents between 2013 and 2015 will result in big changes as to the rates payable by occupiers.

It is estimated that some high street shops in central London are facing rises of up to 400%.  Rates on Bond Street are expected to rise by over 100% whereas occupiers in Westfield White City will see increases of around 62%.  With business rates already being the third biggest outgoing for small businesses, after rent and staff costs, this could have a major impact on the high street.  The increases are to be introduced in stages but in a few years businesses will be feeling the full force of the changes.  Time will tell whether this will fuel the tendency of some retailers to downsize their bricks and mortar operations in favour of an increased online presence.

It’s not all bad news.  The rates revaluation is carried out so as to raise no extra money.  With such large increases faced by some businesses, in areas where market rents have not increased as much or have stagnated business rates are set to fall.  Areas such as Yorkshire are estimated to see a 41% reduction in rates bills.

In light of the potentially drastic consequences for some occupiers and following lobbying from MPs and businesses, the Chancellor has announced in the Spring Budget some measures to help those affected by the changes.  These include a £300m fund for local councils to offer discretionary relief for businesses hardest hit by the increases and a £1,000 discount to the rates bill for local pubs with a rateable value of less than £100,000, which is estimated to be 90% of pubs.  A consultation before the next rates revaluation is also promised.