• Sep 10 / 2015
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Andy Burnham Would Replace Business Rates with Land Tax

The former Labour leadership candidate Andy Burnham recently announced plans that he would replace business rates with land tax if elected.

Earlier this year, he made a speech at Microsoft in Reading where he said that he would like to conduct a thorough review that analysed the balance of the UK’s tax regime. According to his speech, transforming business rates would be one of his considerations on making the UK’s tax plans pro-growth and productivity boosting.

He also cited the importance of incentivising the utilisation of brownfield sites and providing small business rates relief.

Burnham has now called for the end of business rates and suggested land value tax as a replacement.

How would Land Value Tax replace business rates?

Since the recession, many businesses have raised concerns over the burden of business rates. One of the most common complaints is that the tax is unfair because the charge does not take various important financial aspects such as profitability or the economic cycle into account. Others are concerned because they are paying rateable values based on market rents that were assessed in 2008. Ultimately, it’s no surprise there was a spike in business rates appeals ahead of backdated deadline.

Business rates already include elements of land tax as rateable value is based on probable annual market rent and takes the size of property and its usage into consideration. However, land value tax is solely based on the value of the land owned. Rather than facing business rates that are reviewed every five years and often criticised for their inflexibility, land value tax would ensure a fixed rate tax based on the value of a site without any buildings on it

Andy Burnham has said: “It would be an incentive for land to be used as productively as possible . . . At the moment people can land bank without paying anything.”

But one of the main obstacles of implementing Land Value Tax would be the task of valuing land that doesn’t have buildings on it. Furthermore, there would be immediate unfair effects on some businesses as some would immediately benefit while others would suffer.

The future of business rates

There’s no doubt that some will be encouraged to hear a politician proposing a business rates replacement. Currently, many are hoping that the government’s review of business rates will ensure a much fairer version of the tax.

In the meantime, those looking for business rates relief could benefit from engaging in correspondence with vacant property management companies.

  • Sep 20 / 2015
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News

Business rates put free ATM machines at risk

Free ATM withdrawals could become a thing of a past if companies who own cash machines continue to be charged excessive business rates. The Association of Convenience Stores (ACS) has written to the government calling on it to remove the charge on free ATMs and has warned shopkeepers will have to charge customers to use the machines should the business rate charge remain in place.

In 2013, the Valuation Office Agency (VOA), which assists the government with property taxation, ruled that a cashpoint built into the exterior of a shop should have a separate business rate to the rest of the property. The charge is based on how often the cashpoint is used and how much money is withdrawn. This does not apply to ATMs standing within the interior of the store.

Current business rates mean that ATM machines can cost up to £15,000. More than 10,000 cashpoints are affected by the charge. The VOA also decided to backdate this charge as far back as 2010. This has left many shop owners facing huge one-off charges. The industry as a whole is facing a combined £500 million charge, according to some estimates.

ATM charges are an added expense to already high business rates

Many businesses are struggling with the current business rates without the added expense of ATM charges. Two of the UK’s leading property industry trade bodies have warned that businesses could face 60% tax rates within seven years. Research suggests that the business rates multiplier – currently set at 49.3% – would represent a tax rate of over 50% after 2017, which is likely to then increase to 60% by 2022.

The British Property Federation and British Council of Shopping Centres are concerned that a property tax increase will have a disastrous effect on the UK’s economy. Increased pressure on rents through high business rate charges would reduce real estate investment and could limit job opportunities as companies struggle to afford the premises they need to flourish.

Government reviews are set to change business rates

How business rates are calculated is currently under review by the government in response to business ratepayer concerns. The government’s preference is for business rates to remain a tax based on property values collected by local authorities. However, the government has suggested the system needs to be more adapted to the 21st century economy and has welcomed suggestions of alternative ways of raising local business taxes. The review will report its findings by Budget 2016.

Under the current system, when a property first becomes vacant it is given a brief period of exemption from paying business rates. This is usually a 3 month period for most commercial buildings, although some property classes have different periods of relief. After this time the full business rates are payable by the owner, even if the building remains empty. Business rate mitigation of as much as 90% can be achieved by employing a vacant property security firm.