Unintended consequences of shops’ business rates relief – June 2017

We’re not alone in believing that the business rates relief on offer to high street charity
shops, and the threshold below which business rates are not paid, is distorting the
commercial property market. It’s a story that we hear from many landlords.
Larger shops are becoming harder to let, a situation affecting landlords in rural towns and
villages.
One hundred percent business rates relief only applies to properties with a rateable value
of less than £12,000 and then is tapered upwards on buildings with a rateable value of
£15,000.
That level of relief is a significant contributor to the viability of small, and especially, rural
businesses.
This gradation, well meant as it was, damages the prospects of small businesses, and
means that they struggle to make the shift into larger premises.
Several years ago, the then Chancellor, George Osborne introduced these rules to favour
small businesses.
At the time, of course, it was widely welcomed by the 600,000 smaller businesses it
affected: hairdressers, corner shops and small independent coffee shops across the land.
A further quarter of a million businesses received some tax relief.
But there have been unintended consequences as the rateable value of property has
increased. The step up from a property with a rateable value of over £15,000 is a big one.
As small businesses move to larger premises, a much greater proportion of their turnover
goes on tax.
At the time of the change, Dr Adam Marshall, of the British Chambers of Commerce, said:
“The Chancellor listened to our calls to avoid higher business taxes and costs, and moved
to lower them in a number of areas. He has finally taken real action to lessen the crushing
burden of business rates and sharpened incentives for entrepreneurship and investment.”
We believe that the unintended consequence has been to stifle growth and streets filled
with charity and coffee shops.
Charities occupying commercial property are entitled to 80 percent relief, provided the
premises are used wholly or mainly for charitable purposes. This is tremendously useful to
the sector, of course!
The unintended consequence is that other businesses are finding it hard to compete and
find it difficult to afford the rent and increased rates combined.
It penalises small businesses in larger high street retail premises, something that was
highlighted in a report carried out by Mary Portas some years ago.
In 2011 the Government commissioned her to conduct an independent review of how to
revive high streets. She recommended that the number of charity shops on each high
street should be limited and explained that tax relief on charities “builds a disadvantage
into the system… Landlords are choosing the safe option of charity shops and small new
retailers aren’t getting a look in”.
It is widely acknowledged that significant pressure on charities over recent years has
forced them to look at shops to boost their income. It is estimated that there are more than
10,000 across the UK, a number that has doubled in 20 years.
But they are distorting the market because of the tax benefits they receive.
We wouldn’t wish to penalise the charity sector, but the system of tax relief is now so
much out of balance in its favour that it is making life hard for both landlords who want to
let property and to small business that might want to move.
And of course, it does not necessarily follow that running a retail business from larger
premises makes you a bigger business. You could be selling big bulky items, such as
furniture or white goods, and still be a small business.
And the unfairness of this is that some of these smaller businesses have now been taken
out of rating altogether just because they are operating from smaller premises. Jewellers,
for example, can be turning over similar figures to furniture or white goods retailers, but
with greatly reduced overheads. Smaller businesses in larger premises also have to
complete with out of town retail outlets which are being charged at a lower rate per square
foot compaired to the High Street. These out of town retail outlets are often run by large
multiples which can absorb these overheads far more readily.
We would urge the new Government to look urgently at this matter, and see what they can
do to smooth the transition from non payment of business rates and allow small
businesses to trade on equal terms. Perhaps the answer is to increase the rates for out of
town stores and remove the rates for moderately larger premises

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Vanessa Penn

About Vanessa Penn

Vanessa Penn was formerly Director of Commercial Agency for Countrywide Commercial, Bradford & Bingley and Douglas Duff part of Erinaceous Plc. Vanessa now runs her own agency Penn Commercial located in Ipswich, Suffolk www.penncommercial.co.uk. Penn Commercial boasts a number of local, regional and national clients and has formed an excellent and loyal client base.
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