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Almost one in six English businesses has been summoned to appear before magistrates for non-payment of business rates in the past year, prompting fresh concerns about the controversial levy.
According to business rates consultancy Altus, local authority replies to freedom of information requests suggest that 171,018 summons were issued in the year to March 31, equivalent to just under 10 per cent of all business premises in England.
Removing the 678,000 properties that are exempt from business rates from the calculation, and adjusting for the 10 per cent of properties not included in the survey raises the proportion to more than 15 per cent.
Robert Hayton, head of UK business rates at Altus, said the high incidence of legal recourse could not be explained by tax avoidance alone and that steep rises in business rates were having a detrimental effect on the real economy. “Major retail and hospitality businesses are reducing their estates and headcount, often citing the high level of rates as a contributory factor,” he said.
Rising business rates have been particularly burdensome for retailers, who pay a quarter of the total raised even as they grapple with rising labour costs and falling revenues as shopping migrates to the internet.
Many, including Debenhams, Arcadia and Monsoon, have resorted to insolvency procedures to reduce rents and close stores, while others such as Bathstore have gone into administration. According to the Centre for Retail Research, 27 retailers went bust in the six months to June.
Business rates are calculated using a rateable value derived by the Valuation Office Agency and a multiplier. There are exemptions for smaller businesses occupying only one property and for some pubs and retailers.
The tax raises around £30bn each year, with the proceeds generally split between local authorities and central government. Business rates outside England are the responsibility of devolved administrations, and were not included in the Altus calculations.
The authorities most likely to issue summons for non-payment were located in London, where high rent levels translate into high rateable values and big business rates bills. Westminster Council issued 6,882 summons during the year, while Richmond and Wandsworth both issued summons to more than a quarter of businesses in their area. But Liverpool, Middlesborough and Leeds were also heavy issuers.
Business rates have risen steeply in recent years, partly because a revaluation in 2015 was deferred for two years during which rents in many areas rose steeply. Meanwhile the multiplier has risen from 34.8p in the pound when rates were introduced in 1990 to 50.4p in the current tax year.
Another factor in the high level of arrears may be the appeals process. The VOA launched a new system for challenging valuations in 2017, but John Webber, head of business rates at Colliers, has described it as “an unmitigated disaster” whose slowness and complexity is discouraging business owners from challenging valuations at all.
At the end of March 2019, 8,190 of the 12,930 challenges received against 2017 valuations in England were still unresolved, according to VOA data. The agency says that data from the new system is not comparable with the previous one and that the government’s decision to bring forward the next revaluation to 2021 has created additional pressure on resources.
The change of prime minister and chancellor last month has prompted more calls for fundamental reform of business rates. British Retail Consortium chief executive Helen Dickinson said she hoped the new administration “will commit to a full review of the broken business rate system”.
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