The method used for working out business rates needs an overhaul if firms are not to suffer additional tax burdens.
The British Retail Consortium (BRC) has written to the Secretary of State for Communities and Local Government urging him to adopt a new way of setting rates for businesses in England and Wales.
At the moment, the annual rates increase is calculated according to the Retail Prices Index rate of inflation each September. The subsequent rise is introduced the following April.
This year the RPI rate of inflation could be as high as 4 per cent come September, the BRC said.
The BRC also highlighted a second area of concern for businesses operating out of commercial properties.
The other element of the business rates calculation is determined by rateable values, based on how much it would cost to rent commercial properties. These are re-calculated every five years, and the last change was introduced in April 2010.
As a result, many firms saw a sharp increase in their rates bills. To soften the impact, a transitional scheme was introduced to phase in the additional charges.
But the BRC claimed that a combination of having to pay significant costs held over from 2010/11 and a high annual increase on the back of this September’s RPI rate could push up rates bills for some businesses by as much as 22 per cent next April.
To ease the burden, the BRC wants the government to investigate other means of working out the charges, perhaps by switching from the RPI rate of inflation to the traditionally lower Consumer Prices Index.
Stephen Robertson, the BRC’s director general, said: “We’re urging the government to use alternatives to September’s RPI to calculate next April’s bills. The coalition has already changed the way pensions are calculated. It’s now using CPI rather than RPI – this change could also apply to business rates. Another option is to use the 12-month average RPI rate from October 2009 to September 2010 – which would help to iron out inflation volatility.
“The private sector has driven the economic recovery so far, we need that trend to continue. This double business rates blow will undermine retailers’ ability to create and maintain jobs and to contribute to the success of town centre regeneration projects across the country.”
The BRC is also calling for the government to ensure that Business Rate Supplements are only used for projects which have the support of local businesses.
On empty property rate relief, Mr Robertson said: “We’ve campaigned vigorously for the re-introduction of Empty Property Rate Relief (EPRR), since it was removed in April 2008.
“The temporary increases in EPRR, allowing more empty properties to qualify for an exemption to business rates until 2011, were a welcome step in the right direction. But, given the threat of a double-dip recession, the government must seriously think about allowing more businesses to benefit from the relief and extend the timeframe to 2012.”
Prior to April 2008 no business rates had to be paid for the first three months during which shops and offices were empty; after this period only 50 per cent of the normal rate was due.
Since the relief was scrapped, there is still no charge for the first three months but then full business rates must be paid even if the property is unoccupied.
In the 2008 pre-Budget Report, the previous government introduced a one-year exemption for empty properties with a rateable value of less than £15,000. This qualifying limit was later increased to £18,000 and extended by another year in the 2009 pre-Budget Report.
