Fundamental Review of Business Rates in England concludes

Key Business Rates headlines include a move to three yearly revaluations and a discount of up to 50 percent for retail, hospitality, and leisure.

Key Business Rates headlines include a move to three yearly revaluations and a discount.

The Government has concluded its fundamental review of Business Rates in England, with the 26-page Final Report published on Budget Day. The Final Report reaffirms the importance of Business Rates and its central role in the tax system. The tax is therefore retained but will be reformed to make it “fairer and timelier”. The reforms include more frequent revaluations as well as new discounts and reliefs. The Government estimates that the reforms represent the biggest rate cut for 30 years (excluding the COVID-19 reliefs). The Government is still weighing up the pros and cons of introducing an online sales tax (OST) and has confirmed that a separate consultation on this will be published soon. This is expected to generate significant interest and debate across the retail community.

Headline changes set out in the Final Report include:

  • Revaluations will now take place every three years, rather than every five years. This will start from the April 2023 revaluation. Whilst there was widespread support for having a shorter Antecedent Valuation Date (or ‘AVD’ – which is the period between the revaluation date and the date at which market rental values are assessed), this will remain as two years for the time being, such that the AVD for the 2023 revaluation is April 2021. Both the length of the AVD and the periodicity of revaluations may be shortened further in future, signaling a trend towards business rates responding more quickly to fluctuating market and economic trends;
  • The planned increase in the multiplier next year is cancelled. Instead, the multiplier will be frozen at the 2021/22 level;
  • A 50 percent discount for small retail, hospitality and leisure businesses will be implemented - up to a maximum of £110,000 for 2022/23. This discount takes effect immediately which will be particularly welcome news for smaller businesses still feeling the impact of the pandemic as well as increasing competition from online retailers. However, it will not help large legacy retailers who are most likely to have excess physical space;
  • Changes to the way relief is applied for investments in renewable energy and storage, with new investment relief for green technologies like solar panels applying from 2023 to 2035, regardless of whether the installations are for a businesses’ own use or for onward sale;
  • In order to avoid disincentivizing investments in property, the Government is introducing a 100 percent improvement relief for property improvements for one year e.g., an office adding new air conditioning. This will start in 2023 and continue until a review in 2028;
  • The Government has pledged £0.5 billion additional funding for the Valuation Office Agency (VoA) – to cover the additional resourcing needs arising from the increased frequency of valuations, a move towards digitalisation of business rates and increased transparency and guidance around the approach to valuations by the VoA; and
  • Backward looking appeals of past revaluations will transition to being limited to the ‘life of the list’ from 2026 i.e., from 2026 the end of each list will be set as the statutory deadline for the VoA to resolve challenges.

The Final Report has not concluded on the issue of whether an OST should be implemented. It has noted some difficulties with an OST – in particular the possibility that it would simply be passed on to consumers and the potential arbitrary nature of decisions around those activities deemed to be ‘online’ and therefore taxable or not. As a result, there will be a separate consultation, which is expected shortly.

If you would like to discuss the impact the changes to business rates will have for your business please contact Stella Deakin, George Hay or Kate Allen, specialists from our Regulatory Finance team.