Government may remove vital business rates relief from SMEs and charities in bid to rake in £2.4bn, warn property experts

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The government is considering scrapping business rates relief to claw back £2.4bn at the expense small firms and charities.

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The warning comes from property consultancy Daniel Watney whose research recently showed the BBC and Home Office were among London’s biggest ratepayers. This warning follows a recent government discussion paper sets out the extent of reliefs granted in England in 2013-14 and then asks companies if and how they have been using these reliefs to avoid paying full business rates. Debbie Warwick, head of Business Rates Services at Daniel Watney, has written to the heads of more than 50 business groups warning them to respond to the innocuous looking discussion paper before the deadline in a bid to highlight plans that she believes could have far reaching economic consequences.

The paper says “the government wishes to look at ways to tackle business rates avoidance, including the abuse of business rates reliefs and exemptions”. Adding that the government wishes to “support genuine businesses which legitimately claim rate relief to which they are entitled”. This does not say whether entitlements will continue at all.

Cutting exemptions would hit charities and small businesses the hardest. Charities could see their rates bills become five times higher which, for many, may prove unmanageable. Absence of reliefs could discourage small businesses from expanding into larger properties or from moving in to commercial premises at all.

One of the areas the government consultation claims to be tackling is ratepayers deliberately making property unoccupiable to avoid bills. This activity spiked after 2008 when, as chancellor, Gordon Brown scrapped empty rates relief in order to raise £1bn in business rates revenue. Before 2008 firms enjoyed 50% relief (or 100% relief for industrial use buildings) which was considered broadly fair and resulted in minimal resistance or appeals.

Scrapping that relief has led to a surge in appeals resulting in massive financial cost as the VOA has buckled under the weight of administration while seeing its own budget cut by 40% during this parliament. The Coalition could now be turning its back on those who are genuinely eligible for help having opposed Brown’s move while in Opposition themselves.

In her letter to the regional Chambers of Commerce and other interested bodies Debbie Warwick urges them to respond before the consultation period ends on 28th February.

Debbie Warwick, Head of Business Rates Services at Daniel Watney said,

“Scrapping rates relief would be a backwards step for the businesses.

The yield from business rates is already very high which is why we see so many ratepayers trying to avoid unnecessary costs. Charging at the full rate for empty properties since 2008 has encouraged avoidance in a system which previously was accepted as fair by ratepayers by allowing relief from full charge whilst a property was unoccupied and this reduced charge was rarely challenged. Cutting reliefs would take away some of the flexibility the UK has been trying to build in the property market for some years.”

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