Transforming Business Rates: Unpacking the Interim Report

On the 11th September, the Government published "Transforming Business Rates: Interim Report". The reports breaks down the responses to the "Transforming Business Rates Discussion Paper" released following the 2024 Autumn Budget as well as providing the Government to respond to some of the feedback.

The Government provided their thoughts on a number of issues, namely:

• ‘Slab’ to ‘slice’ reform,

• Enhancing Small Business Rates Relief (SBRR),

• Enhancing Improvement Relief,

• Exploring stakeholder concerns over the ‘Receipts & Expenditure’ methodology,

• Transitional Relief in future rating lists,

• Exploring the possible benefits of shortening the Antecedent Valuation Date

• Increased revaluation frequency, and,

• Using the merger of the Valuation Office Agency (VOA) with HMRC to help ratepayers.

We've broken down what the Government has said about each point and what this could mean for you:

'Slab' to 'Slice' reform

Within the responses to the discussion paper, the current business rates system was described as a 'slab' structure, as a single multiplier is applied to the entire rateable value of a property.

For example, currently, a property with a rateable value of 50,000 uses a single multiplier of 0.499 to receive its notional charge of £24,950. Likewise, a property with a rateable value of 10,000 uses the same multiplier to arrive at its notional charge of £4,990.

The Government wish to explore a 'slice' structure such as is currently used in income tax.

Under such a system, hypothetically, the first 10,000 could adopt a 0.3 multiplier, then next 10,000 0.4, the next 10,000 0.5 and so on (we should add any system will definitely have far more nuance than this). This would arrive at a charge of £25,000 for a rateable value of 50,000 but only £3,000 for a rateable value of 10,000. Ultimately, creating a system more forgiving for smaller properties and more punitive for larger ones.

The Government has made clear their reforms are intended to be revenue neutral. So, if there is to be a lower multiplier benefiting smaller properties, then someone will be paying for it somewhere. The exact numbers that get put forward if this system is explored further will be extremely interesting to see.

Enhancing Small Business Rates Relief

A frequent criticism of Small Business Rates Relief has been it discourages growth.

Presently, companies with a single small space can benefit from up to 100% relief under this scheme.

Taking on additional properties can often completely remove eligibility for this relief.

The Government have stated they wish to explore the removal of this cliff edge, removing the financial disincentive of growth.

This could be really beneficial for smaller businesses looking to expand beyond a single property. It is certainly encouraging that the Government have recognised this issue.

Enhancing Improvement Relief

Improvement Relief is an initiative aimed to remove barriers to growth and expansion. In simple terms the idea is that if you built an extension, you don't need to pay business rates on that extension for a year.

Uptake for the relief has been low and the actual impact of the relief has been minimal.

The Government want to explore how to enhance this relief once further data has become available.

Without knowing more how the Government wishes to enhance this relief, it is hard to pass comment. Any measures taken to encourage investment and improving property is a welcome initiative.

Receipts and Expenditure method

The R&E methodology of valuation looks at the income brought in by the property at providing a rateable value based on that figure. It is only adopted by select sectors. Those sectors have expressed discontent about the uncertainty this methodology offers.

The Government has stated it will explore these concerns further.

Transitional Relief

The Government have stated transitional relief will continue into the 2026 rating list. Transitional relief smooths the increase in charge for properties that have had large jump in their rateable values as a result of revaluations.

This is a welcome announcement for ratepayers as we move away from a rating list that was based on 2021 rental data (a depressed post-Covid market) and increases to rateable values are expected in the 2026 revaluation.

Shortening the Antecedent Valuation Date

Rateable values are reflection of the rental value of a property at a certain date, this date is the Antecedent Valuation Date. Presently, 2023 rateable values are based on data from April 2021. The upcoming 2026 rateable values are to be based on April 2024 data.

The Government has expressed a willingness to look into reducing the time period between the Antecedent Valuation Date and the revaluations. So rateable values should be more reflective of current market conditions.

This measure would require a much faster turnaround from the Valuation Office in collecting the data and valuing properties across the country. The concern would be the increased speed of work required could compromise the quality and accuracy of the assessments.

Increased revaluation frequency

Currently, there is a revaluation every 3 years, this is where every property is given a new rateable value based on the rental market conditions at the Antecedent Valuation Date (see above).

The Government has stated it does not wish to increase the frequency of revaluations as it is felt this will create instability and limit ratepayer's ability to forecast.

Less frequent valuations does provide stability but at the potential cost of having an outdated assessment. Given that revaluations typically bring around rateable value increases (the 2023 revaluation saw a 7% increase on average), less frequent valuations are generally going to be better for ratepayers.

Merging HMRC and the VOA

This is a previously announced measure, the hope is that combining the role of the VOA with the experience of HMRC will bring greater efficiency for ratepayers.

This move has faced criticism that it takes away any semblance of impartiality from the VOA.

Summary

Ultimately, it seems we will need to wait for 26th November and the Autumn Budget to see the full Government plans, however, the general focus on removing barriers to investment are positive signals.

The full Interim Report can be read here: Transforming Business Rates: Interim Report - GOV.UK

If you have any questions about the Interim Report or anything business rates related, please get in touch with us on 0208 0950 990 or info@hollowaybond.co.uk.