Small Talk: It’s time to relieve little firms of the business rate millstone
Don’t be surprised if small businesses dismiss Chancellor Osborne’s support as two-faced
The unexpected fall in inflation announced last week by the Office of National Statistics will have been welcomed by most businesses – all the more so given that the major driver of lower prices was a decline in fuel costs, a disproportionately large part of many businesses’ expenses. For small businesses, however, there was a sting in the tail.
While inflation on the consumer price index fell to 2.7 per cent in August, the retail price index went the other way, rising from 3.1 per cent in July to 3.3 per cent last month. Another increase this month would be really bad news for small businesses because it is September’s inflation figures – specifically the RPI measure – that are used each year as the reference figure for business rate increases.
Small businesses can ill afford another sharp rise in business rates next April – last April, the tax went up by 5.6 per cent courtesy of last September’s RPI figure. Already, the cost of this tax represents the third-biggest expense for many small businesses after rents and wages. For some, it’s even more of a headache: in a survey by the Federation of Small Business, 13 per cent of small businesses said they were spending as much or more on business rates as they were on rent.
This is a tax that is entirely unrelated to ability to pay – two small businesses in properties with identical rateable values would get the same bill even if one of them was wildly profitable and the other was losing money hand over fist.
Business rates now threaten the future of many of the small businesses the Government hopes will drag the country out of recession. But unfortunately, the review of the link between RPI and business rate increases promised by ministers last year does not appear to have materialised.
Most other taxes and benefits that are uprated annually in line with inflation now take their cue from CPI rather than RPI. That business rates do not is an anachronism – albeit a lucrative one for the Treasury. It’s not as if the Government is unaware of the problem. In recent budgets, the Chancellor has felt it necessary to offer some concessions on business rates to the smallest businesses. This year, for example, those occupying premises with the lowest rateable values qualify automatically for business rate relief that reduces their bill, or wipes it out entirely.
This sort of support is welcome, of course, but there is no certainty about how long it will remain available. Moreover, the Government has consistently refused to consider extending other types of rate relief. Many businesses are paying rates on property that stands completely empty, for example. What’s needed now is not so much further reliefs and allowances but a more fundamental review of the business rates system. A tax that is based on rateable values that may not have been reviewed for up to five years no longer feels fit for purpose.
However, reforming business rates is bound to take time, so it’s important that the Chancellor also offers immediate support – for example, an extension of business rates relief, to more businesses and for longer, and a freeze on bills for the year ahead, whatever September’s RPI figure turns out to be.
The Treasury has yet to say when George Osborne plans to unveil this year’s Autumn Statement, but there’s a good chance his mini-budget will arrive shortly before Small Business Saturday, a new initiative designed to boost the high street. The day has cross-party political support and is scheduled for 7 December. If the Chancellor fails to offer some comfort on business rates, don’t be surprised if small businesses taking part in the scheme dismiss his support as two-faced.
Easy target SMEs ‘bearing brunt’ of tax crackdown
HM Revenue & Customs has found an easy target in small businesses as it seeks to hit demanding compliance targets, a leading accountant claims. UHY Hacker Young points to new statistics showing that compliance investigations into small and medium-sized enterprises netted HMRC £565m in the 2012-13 tax year, 31 per cent more than the previous year.
The tax authority has come under increasing pressure from ministers to do more to combat tax evasion and avoidance, and the Chancellor hopes to raise as much as £7bn a year through a tougher focus on compliance.
But while tax controversies at large businesses continue to make the headlines, smaller businesses without access to expert advice make much richer pickings for HMRC, says UHY Hacker Young.
“Small businesses are bearing the brunt of HMRC’s [crackdown],” says Roy Maugham, a tax partner at the accountant. “SMEs are often less likely to have accountants to manage their finances, making them prone to mistakes when filling in returns. They are also in a weaker position to negotiate over allegations of underpaid tax than a big corporate.”
Hope for suppliers trying to stay afloat
Has Marks & Spencer unwittingly done small businesses a favour? Two weeks ago it told its non-food suppliers that they would now have to wait 75 days to have their bills settled, rather than 60 as before. The retailer’s size has allowed it to get away with treating its suppliers in this way, but a backlash is coming.
The case has added to the pressure on the Government to replace the voluntary Prompt Payments Code with more forceful regulation on late payments. The business minister, Michael Fallon, has already berated large companies once this year and the M&S example might just be enough to persuade his department to turn words into action.
BACS, the payments service, says small businesses have to wait eight weeks on average to be paid by large companies and are typically owed £31,000 in overdue bills at any one time.
Small Business Woman of the Week: Karen Lynch, chief executive, Belu
Belu is an ethical water brand, and we donate our profits to the charity WaterAid. That money has transformed the lives of tens of thousands of people.
We are proving it is possible to stay true to your ethical principles in business and be profitable. But Belu is a story of two halves – its founders had the vision to launch an environmentally responsible bottled water company that would be carbon neutral. But then the financial crisis came along and it became clear any business that couldn’t fund itself was not going to be sustainable.
I joined Belu in 2010, as a consultant and then chief executive. The brief was to see what could be salvaged, but I could see we had a great idea that had been badly executed. We changed the model so we were selling wholesale rather than retail, tried to build scale, and relaunched our brand, focusing on building its credibility.
By 2011 we were profitable, despite having no new investment, and we’ve gone from strength to strength since then, with deals with retailers such as Sainsbury’s and restaurants such as Zizzi, Nobu and Fifteen. Now we’re continuing to grow. We’re also looking at how we can take Belu overseas.
- 1 Finland schools: Subjects scrapped and replaced with 'topics' as country reforms its education system
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 4 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
- 5 Zayn Malik quits One Direction: Hundreds of workers request compassionate leave following band member's exit
Germanwings captain Patrick Sondenheimer tried to break into locked cockpit door 'with an axe' as plane was descending
Amanda Knox murder conviction: Italian court overturns verdict for US student and Raffaele Sollecito in the killing of Meredith Kercher
Saudi Arabia says it won't rule out building nuclear weapons
The battle for the Middle East's future begins in Yemen as Saudi Arabia jumps into the abyss
#FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Germanwings plane crash live: Co-pilot Andreas Lubitz wanted to 'do something people would remember him for'
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...