Coming soon to a High Street near you…
With business rates changing at the start of April, our property man looks over the issues surrounding this hotly debated topic
Article by Charles Fraser-Sampson
In just a matter of weeks, a new business rate will start to be charged to business owners who occupy commercial premises in the UK. Given the time and editorial that has already been dedicated to the topic, you could be mistaken for thinking this had already come into effect some time ago. It’s a confusing subject and may seem irrelevant if not a business owner or working in commercial property. For the many ingenious start-ups and specialist, independent businesses, with premises in London, many of whom Riddle highlights and champions; this will certainly not have escaped their attention
What is a business rate? – A business rate is a commercial form of council tax and set in line with what is called, a “rateable value”, i.e. what a government agency deems the true annual rent of your commercial premises to be. The size, location and agreed commercial usage of the premises will all have a bearing on the annual rent. The more rent you pay, the more your business rate will be.
Why are business rates increasing for the majority? – A business rate revaluation is meant to be carried out by the government every five years, in order to bring the rateable value in line with current achieved rents. The last time was actually 2010 and this revaluation has been delayed. The election year of 2015 would potentially have left the government open for attack on such a task and last year’s Brexit referendum was also not a good time to be arousing potential negative impacts on British business. Normally a business rate cannot increase each year by more than the rate of inflation apart from during a revaluation, which is why some areas in the UK are seeing large increases. Although these new rates will come into effect from 1 April 2017, the rate will be based on values as of 1st April 2015. Much like property values over the period of five years, rents have also increased and this is why a large number of premises will see its rate increase. There will however be some which actually see a decrease if there’s evidence of average rents falling since 2010 in the their immediate area and most importantly if the government agency, (The Valuation Office Agency) has correctly identified this trend.
What can be done? – Not a huge amount is the answer. Given the scale of the task it’s quite a general appraisal of average rents which the agency has spent considerable time compiling to best decide what the latest rate should be set at. Unfortunately unless a business has been well advised about this sort of thing then a number of affected business owners will not necessarily have been aware of the appeals process and the 1st April deadline. Other possibilities might be checking whether there are grounds to apply for reliefs or temporary reductions such as, infrastructure and major building work affecting the everyday running and customer access to your premises. Other reliefs can be applied for such as if you’re located in a small rural area with a population below 3,000 or you happen to be the only provider of a key service in that local community. The best option will always be to speak, free of charge, with the Business Support Helpline and perhaps more likely, a commercial specialist and chartered surveyor. Their fees will often be based upon the percentage of what they ultimately save you in your rate if they feel you have a good case.
What are the real term effects? – There are certain industries for whom location is almost non-negotiable if they want to have the kudos to attract the right clientele. This ultimately means that they have little choice but to pay a high rent, which in turn means a large business rate. The men’s tailoring industry for instance has deep roots with Saville Row and the surrounding area of Mayfair. Any small, new business trying to establish themselves in these sort of established and iconic areas will always have the daunting hurdle of eye watering rents and rates to overcome. Given the time that’s passed, there are a number of new business who chose some years ago, what they thought were relatively cheap premises in the East of London, just outside The City. Locations where they were able to collaborate with and draw on the experience of other start-ups. In the years since, this model has become a hugely popular one and as a result the demand for working spaces has heightened and rents increased. Businesses with premises located in Shoreditch and Clerkenwell will see a new rate that is over 18 per cent higher than the last set in 2010. It’s in areas such as these that will see some of the largest hikes in business rates. The City, Aldgate and Whitechapel, the hub of the banking and insurance sector and more recently a new wave of tech companies, will be seeing an increase of 30 per cent. The area known as West End, encompassing the likes of Saville Row, Oxford Street and prime Mayfair is seeing a more modest increase of a little over 7 per cent. However, their rateable value is already by some way the highest in London.
In terms of the immediate future there is already good demand for shared working spaces and contemporary business clubs that are designed specifically to cater for informal and formal meetings, with Skype, hot-desking and a professional phone answering service. For a relatively low annual membership, these may become a more and more popular alternative as the self-employed and small businesses look to swerve the financial burden of leasing commercial space. Larger companies are not un-touched by this rate rise with there being plenty of examples in the news lately of supermarket chains not proceeding with building on previously acquired sites. The large internet based retailers such as Amazon are often seen as getting away lightly but then you have to remember that whilst they don’t require a costly high street shop presence, they do however require huge industrial warehouses. It’s little wonder that in light of all of this we see small independents being squeezed out of popular and trendy high streets as the bigger chains, who can absorb those costs, take their place. A number of retailers are seeking to grow their online presence and market share to move away from having a physical high street presence. Where though does this leave the independent wine merchant or the bespoke milliner for who an accessible location and physical customer interaction is at the soul of what they do? Many popular lunchtime destinations such as Pret and Wasabi have been clever and worked around their commercial licences by preparing hot food off-site and then only warming it up in store to avoid a more costly restaurant licence. They charge you more to eat-in because their licence restricts them to a certain number of covers and therefore their not so subtle incentive is to pay up and consume off the premises.