100,000 SMEs under threat from business rate plans

The abolition of business rate relief will put 1 in 20 small firms out of business, figures suggest.

Last Updated: 31 Aug 2010

The Government has been accused of threatening the future of thousands of small businesses, thanks the ongoing row over business rate relief. According to the Tories, recent changes to the rules are intended to increase the tax take by £100m – which means that 100,000 UK companies, mostly small firms, will be forced to pay an additional £1,000 in tax each. This would obviously be a hammer blow for some of these SMEs, and possibly even the final nail in the coffin – the Government itself acknowledges that one in 20 firms are likely to go out of business trying to pay the charges. Not very enterprise-friendly, is it?

Business rates (which are basically the business equivalent of council tax charges) are based on the rateable value of a company’s premises. This is recalculated every five years to take into account property market fluctuations – but the last revaluation in the UK took place in 2005, and clearly a lot has changed since then. To make sure SMEs weren’t hit with a massive hike in rates after five years, the Government previously introduced transitional relief, i.e. incremental annual increases to cushion the blow. However, this relief expired in April 2009, which means small companies will have to pay £40m more this year, £30m more in 2010-11, and £30m more in 2011-12. If they’re still going by then.

The business rate barney has been brewing for some time, with many businesses hopping mad about the valuation of their premises. Last month car entrepreneur Clive Sutton told MT: ‘I’ve been busy writing letters of complaint to my MP about the appalling situation over business rates,’ he fumed. ‘My premises have been over-rated for years – if they re-valued it correctly, we’d be due a refund of about £70-80,000. But you can’t talk to anyone – they’re all jobsworths, nobody actually runs a business.’

If one in twenty businesses do go bust, as predicted, it’ll be bad news all round – the Government will lose out on the £80m of rates that will go unpaid as a result, while thousands of people will lose their livelihoods. The Government likes to trumpet its support for small businesses, not least because they employ a lot of voters. And it insists that the Tories are making a fuss about nothing – a local government spokesman told the Mail today that most companies will see rates fall next year. We’d be interested to hear your experiences – but it seems that if the Government wants to keep the small business community onside, it might need to take another look at business rates.

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