Retailers have been given a last-minute reprieve over business rates, but have been warned that they will bear the brunt of further hikes that are due to be imposed in April 2010.
On March 31, the Chancellor suddenly announced that a 5% increase, which had been due on April 1, would be restructured, and payment spread over three years.
The move followed industry outrage at the proposed 5% rise when it was first announced last December, with the Association of Convenience Stores (ACS) branding it a "massive burden" on retailers.
Many felt that the increase was unfair as it had been calculated on the Retail Price Index (RPI) of September 2008, when property prices were at their peak. And the ACS urged the government to freeze the rates due to the current difficult economic conditions.
Alistair Darling’s 11th hour climbdown means there will be an increase of 2% in 2009/10, and then 3% spread over the following two years. However, the readjusted bills will not be sent out for some months so businesses still have to pay the initial proposed 5% increase until that time.
In addition, retailers have seen huge increases in business rate bills from this month due to a long-standing programme of tax relief coming to an end. The transitional relief programme, introduced in 1990, was aimed at helping businesses deal with huge jumps in their rates, by capping increases. However, in 2004 the government realised there was a shortfall in payments and decided to suspend the scheme for one year - and that year was 2009. That means that this year, for the first time in 19 years, there is no rate relief.
It couldn’t have come at a worse time - coinciding with the recession. According to the Local Government Association (LGA), which represents councils in England, the relief programme is due to restart next year.
Meanwhile, industry experts have called on the government to scrap plans for a business rate supplement which would allow local authorities to levy supplementary taxes on companies to pay for local infrastructure projects.
== Rateable values ==
The final issue - and to many retailers the most worrying - involves the latest revaluation of the rateable value of properties, which is due to come into effect from April 2010.
Business premises are given a rateable value by the Valuation Office Agency (VOA), and local authorities use this assessment to calculate business rates bills. The rateable value is based on the likely annual open market rent for the premises at a particular date. And these rateable values are reviewed every five years - they were last updated on April 1, 2005, based on market rents at April 1, 2003.
The latest revaluation will be based on market rents on April 1, 2008 - again when the market was booming, and will come into effect in bills in April 2010. According to many retailers, this means the average business rates bill for a forecourt will jump again, and probably double.
Fraser Duffin, property manager at MRH (GB) - the biggest independent fuel retailer in the UK - said the planned increase for 2010 had the potential to have a much greater effect than this year’s rise. Fraser said that the average annual business rates bill for one of MRH’s sites last year (the year ending March 31, 2009) was £12,750. After this month’s increases, that had initially jumped to £16,300 - a 28% rise (due to the 5% increase and the transitional relief programme ending). And he said that the way things were at the moment, this looked likely to double next year.
Fraser said: "This revaluation takes place every five years, and each time our sector gets given a different way of calculating the rateable value. The way it’s worked out at the moment, based on fuel sales, car wash sales, shop sales, etc, means the sites with 3mlpa to 7mlpa are hit the hardest. And that’s the independent sector - the oil company-owned sites and supermarkets escape because they usually have higher fuel volumes. It’s the independents that will pay the brunt of this.
"From the data we’ve looked at, the rateable values will double for the average site in 2010, although there are still negotiations to try to make this more reasonable."
Fraser said organisations like the MUA (Machinery Users Association) were in direct negotiations with the Valuation Office over the issue. But he said the MUA, which is a ratings advisor specialising in the fuel sector, needed as much sales data as possible to argue the industry’s case. And he asked for retailers’ help with this.
He added: "Forgetting about the current recession, it is generally thought that the rateable values set in 2005 were too low. There has been seen to be a lot of growth in the filling station sector in the past five years - it has been buoyant. Plus rents and freehold prices have gone up in the past five years. I think fuel retailers will see rates rise more than in other retail sectors."
Retailer Mark Carsley, director of the Carsley Group, expected most retailers to appeal against next year’s expected rises.
He explained: "From what I’ve heard, it looks like the 2010 rates at some of our sites could rise by at least 100% or maybe more. Nothing’s been finalised yet, but it will be a disaster if they go up by the amount they’re talking about.
"I don’t understand how a government in the current economic climate can put rates up above inflation. It’s very unfair to base the rates on property prices in 2008. I would expect every single retailer to be appealing if the amount goes up. The thing is, if the bill is appealed, then the business seems to usually win, so you tend to think: Why can’t they just get it right in the first place? I’m hoping the government will postpone the rise, or at least look at the situation again and base it on the value of properties in 2009."
Mark Wilson, operations director at the Fraser Group, said: "According to the latest figures, we’re now in a period of deflation. They should be putting the rates down, not up."
Retailer Paul Sykes, of Shaw Petroleum, added: "We’ve got an expert working on this for us to see how much it’s likely to be. However, there’s got to be a reality check about it. I think these tax increases will happen, and this is just one way in which they’ll try to get money out of us.
"In the words of Denis Healey, I think they’re going to tax us until the pips squeak."
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