A higher threshold would free thousands of small firms from rates altogether, and I went looking for a shop in the capital small enough to qualify
Small Business Rates Relief and the London Problem
There is a number doing the rounds ahead of the Budget, and it is a strangely exact one. Seventeen thousand and ninety-six pounds.
A daily bulletin for business owners reported on 21 September that the Chancellor is considering raising the small business rates relief threshold from 12,000 pounds to 17,096 when he delivers the Budget on 28 October. The Federation of Small Businesses, it noted, has been calling for a substantial increase.
That sounds like good news, and for a lot of the country it would be. I spent an afternoon working out what it would mean on a London high street. The answer is: less than you would hope.
What the Threshold Is
Business rates are the tax a firm pays on the premises it occupies. They are based on the property’s rateable value, which is an official estimate of what the place would rent for in a year.
At present, if you occupy a single property with a rateable value of 12,000 pounds or less, you pay no rates at all. Between 12,000 and 15,000 the relief tapers away. Above that you pay in full.
So the proposal would lift the point at which a small firm pays nothing. A business in premises valued at, say, 16,000 would go from a full bill to none.
For a hairdresser in a market town, or a workshop on a trading estate, that could be several thousand pounds a year. It is real money. The bulletin put it in terms of thousands of smaller firms receiving additional relief.
Now Try It in London
I live in N8. My local parade has a dry cleaner, a Turkish grocer, a nail bar, a cafe, a chemist and a shop that sells nothing but vapes and phone cases.
Rateable values are public. Anyone can look them up. So I did, for the whole parade.
The cafe, which seats perhaps sixteen people if two of them are thin, has a rateable value comfortably above twenty thousand. The dry cleaner is higher. The chemist, which has a corner site, higher again. Only one unit on the parade came in under seventeen thousand: a narrow lock-up that is currently a key-cutting booth.
That is in a perfectly ordinary bit of north London. Go into zone one and the numbers lose all contact with the threshold. A small shop in Soho or Marylebone will have a rateable value in six figures.
The reason is simple. The value is based on rent, and rents in London are several times what they are elsewhere. A relief defined by a single national figure will always catch far fewer businesses in the capital.
So a threshold of 17,096 would help the smallest firms in the cheapest premises. In London that means a kiosk, a lock-up or a first-floor room above a bookmaker.
Is That Unfair?
There are two ways to see it.
One is that London is being short-changed. A cafe owner in Crouch End is no richer than one in Chesterfield. Her rent is higher, her wages are higher and her rates are higher, and the relief designed to help small businesses does not reach her because the threshold was set with somewhere else in mind. On that view there should be a higher figure for the capital, or a system that looks at the size of the business and not the price of the postcode.
The other view is that the rateable value is high because the location is valuable. A shop in London has more people walking past it, with more money. If the takings are higher, a higher tax is not obviously wrong. And a government with very little to spend has to draw the line somewhere. A relief generous enough to cover an average London shop would cost a fortune and would also hand relief to plenty of firms that do not need it.
I lean toward the first but I can see the second.
Why It Matters More Than It Looks
Rates are a peculiar tax. They are due whether or not you make a profit. A firm that has had a terrible year pays exactly the same as in a good one. That is why owners hate them more than taxes on income, which at least fall when you earn less.
They also fall on shops and not on websites in the same way. A retailer with a warehouse on a motorway junction pays rates on a cheap shed. Her rival on the high street pays on an expensive frontage. I wrote about this in connection with Oxford Street.
So even a modest change to the threshold is a signal. It says the government has noticed that physical premises are taxed heavily. Whether it goes on to do something that reaches the average high street is another question.
The Money
The awkward part is where the money comes from. The same bulletin that mentioned the relief also reported that higher borrowing costs had sharply reduced the Chancellor’s room for manoeuvre.
Rates raise a very large sum, and councils depend on a share of it. Every pound of relief is a pound that has to be found elsewhere or not spent. A Chancellor with no headroom who gives to small shops must take from someone. In past years that has meant a higher rate on the largest properties, which include the big stores that anchor a high street.
So the cafe may gain nothing, and the department store at the end of the road may pay more. That is not obviously a good trade for the parade.
What I Would Ask For
If I had five minutes with the Chancellor, and I recognise that this is not likely, I would say three things.
Raise the threshold, by all means. It helps real businesses in most of the country.
But do not present it as rescuing the high street in London, because it will not touch it.
And consider whether a tax based on the rental value of a building is the right way to tax commerce at all, in an age when half of it happens on a phone.
What Owners Should Do
In the meantime, some practical points.
Look up your rateable value. It is free and takes two minutes. A surprising number of owners have never checked it.
If it looks wrong, you can challenge it. Values are sometimes based on out-of-date assumptions about the property.
If you are just above the present threshold, watch the Budget closely. The change, if it comes, could take you from a full bill to nothing.
And if you are the man in the key-cutting booth on my parade: congratulations. You may be the only one of us it helps.
For a view of the tax system unencumbered by sympathy, The London Prat provides its British satirical news on business rates relief and its London satirical news about rateable values. Bohiney Magazine covers the American equivalent, which I am told is worse.
SOURCE: https://bohiney.com/