The release of new property revaluations in September 2016 has resulted in uproar in the city of London. An overhaul of the business rates system using the new property valuations will dramatically increase the tax paid by London businesses.

London Mayor, Sadiq Khan has joined a group of the city’s biggest businesses to protest at the Government’s recent revamp, slamming the overhaul as ‘a real kick in the teeth’ for the capital. Soaring property prices are set to haunt London businesses, with some seeing up to an 87% rise in business rates. Khan and the alliance of businesses are asking for a full review of the rates system and more realistic proposals to prepare for the increases.

The overhaul will bring £885m more each year from London’s businesses into the government’s coffers. Central London retailers are calling it catastrophic, and are already reeling from the rejection of Sunday Trading Law reviews. Rapidly gentrifying areas on the outskirts of London will also be hit. Some experts are forecasting business rates increases of up to 120% in parts of Brixton. As business rates are the third largest outgoing for most businesses, sharp increases will have a severe impact on those running with tight margins.

While London bears the brunt of the change, northern towns, such as Blackpool and Bolton will see up to a 56% drop in their business rates as a result of falling property prices. It shows a stark contrast in economic geography. The Institute for Fiscal Studies reveals a growing gap in property prices between London and the North.

What are business rates?

Business rates are a tax that businesses pay on their commercial property. The tax is charged on most non-domestic properties, such as shops, offices, pubs, warehouses, factories and holiday rental homes or guesthouses.

How are business rates calculated?

Business rates are calculated by multiplying the property’s rateable value by the annual business rates multiplier. Business rates depend upon the property value. Your property’s rateable value is set by the Valuation Office Agency (VOA). The VAO is part of HM Revenue and Customs. The multiplier is set by the government and determines the tax rate. The multiplier indicates the percentage of the rateable value, or pence in the pound.

How are rateable values calculated?

The rateable value is based on an estimate of the annual rent a property could have earned on a particular date. Rateable values are currently calculated by the VOA from an estimate based on the property’s open market value on 1st April 2008. Approximately every five years the government adjusts the rateable value (revaluation) to reflect any changes in the property market. The current revaluation uses calculations from the property market on 1st April 2008 (the use of those rateable values came into effect on 1st April 2010). The next revaluation is causing furore in the City, with the new values coming into effect in 2017. The new rateable values, published on 30th September 2016, are available on line for businesses to check their 2017-18 estimate, which in London sees business rates soaring.

What determines the annual business multiplier?

To calculate business rates the rateable value is multiplied by the annual business rates multiplier. This figure is set by the government on the 1st April each year and is increased each year according to inflation. The City of London sets its own multiplier. The multipliers vary according to location and size of business. There are different rates for England, Wales and the City of London, as well as for small businesses in each of those areas. For 2016/17 the multiplier for England is 49.7 (48.4 for small businesses), and 50.2 for the City of London (48.9 for small businesses). Wales has a multiplier of 48.6 as its standard.

The right message?

With post-Brexit shockwaves still running their course, London’s businesses are getting more than their fair share of turbulence. With Reuters recently reporting that the majority of UK CEOs are considering moving operations abroad following the vote to leave the European Union, the hike in business rates could be the red card they’re waiting for. A recent report in the Telegraph highlights the concerns shared by Deputy Mayor for Business, Rajesh Agrawal, “Our businesses are fundamental to the capital’s thriving economy, but with the uncertainty being created by Brexit, the last thing they need now is a hike in business rates on the scale the Government is proposing from next April.”

This was a collab post.