Business property is seen as an easy tax target and an increasingly easy source of government revenue at ever growing levels according to a new report from ICAEW. It has called for business rates to be urgently reviewed. The existence of UK high streets is in question from a tax that fails to scale with ability to pay.
John Boulton, ICAEW Manager of Technical Strategy, comments: “British businesses face the highest property taxes in the OECD, resulting in the last ten years showing receipts rise from £21bn to £29bn. This outstrips the growth of both the Retail Price Index and the GDP. Secondly, no consideration is currently given to profitability when calculating business rates. A drop in sales is not directly reflected in a company’s rates, leaving it vulnerable to failure in a downturn.”
The report looks at four options available to government:
· to maintain business rates with piecemeal changes;
· demolish them altogether, raising lost tax revenues via alternative methods such as increased corporation tax;
· rebuild a new property tax with simplified assessments spreading the burden more equitably, such as basing levies on land rather than rateable value;
· refurbish the tax, reforming particularly problematic elements such as the innovation-deterring rate rise brought about by investments in improved machinery incorporated into a property, or more frequent revaluations of rateable costs.
Many problems exist with the current system due to its complexity. Rates are hard to calculate as valuations must factor in many variables that complicate the system. That is another incremental cost on business. Businesses must also shoulder the costs of challenging and appealing rates bills.
Some changes have taken place, such as the 2016 Budget reforms which aimed to bring relief for small businesses. None of these measures however address the complexity or inequality of the burden, in particular when relating it to the challenge of bricks and mortar retailers viably competing with their online counterparts.
John Boulton concludes: “The digital economy has, more than any other aspect, highlighted the need for change, with the growing disparity of tax treatment between digital businesses and those providing employment in our high street stores. Governments are pushing for new ‘online taxes’ to try and balance the tax system but this will introduce further complexity and not much help to retailers in the short-term.”