With an expected hike in business rates for 2017, Business News Wales asks our panel of experts from across Wales for their opinions and on what small businesses can expect, and what they can do to protect themselves.
How do you think this will affect SMEs in Wales and what can the Government do to support those affected?
Matthew Sutton | Corporate Director
The revaluation of business tax rates are set to come into force in April 2017. These revised tax rates are based on the rentable values of properties in the UK. The current rates are based on values from 2008. With the value of properties having altered dramatically in the past nine years, it is likely that many SME’s could be hit with a significantly higher tax bill when the changes take place in April.
In an attempt to soften the blow, the Welsh government has pledged £10 million in funding to go towards a new Targeted Relief Scheme, which aims to support SME’s in Wales to cope with the revised rates. This scheme will be available alongside the Small Business Rates Relief (SBRR) in Wales, which provides 100% relief for business with a rateable value of between £6,001 and £12,000. Translational Relief will also be made available to those SME’s whose eligibility for SBRR will be affected by the revised rates. The Transitional Relief will work by phasing in any increases in tax payable by SME’s over a three-year period.
Alistair Wardell | Lead Partner
Currently many businesses are grappling with the difficulty of trying to pass on cost increases from rising energy prices and the effect of exchange rate changes on imports. The increase in business rates will be levied regardless of the profitability of a business, unlike corporation tax, for instance, which rises in line with profitability. This will leave many businesses with a squeeze on their already stretched cash resources. The Welsh Government’s £10m subsidy will obviously be welcomed, but in many cases will be seen as insufficient compensation by many business owners.
The hike in rates based on property revaluations appears harsh and combined with the impact of Brexit, the national living wage and the apprenticeship levy you have a ‘lethal cocktail’, recently reported in the Guardian as unsustainable for the majority of small business owners. At best these additional costs will be passed on to the consumer and at worst, we may see many smaller businesses closing their doors, which will be a real shame.
Emma Selfridge | Solicitor and Head of Conveyancing
A glance at our Welsh high streets reveals a mix of empty units and chains of restaurants and cafés. Individuality is gone or going. The recession and credit crunch hit businesses hard and it looks as though things will now get worse with the expected business rates hike.
Small businesses are at best struggling and at worst on their last legs. Can Welsh businesses take another hit? The likely upshot of the increased business rates is a reduction in investment and growth on the high street and fewer jobs overall. Surely there should be investment in SMEs rather than penalising them.
The government has made noises in the direction of provision for those businesses that need it most but nothing concrete has been put forward. Perhaps a replacement business tax system linked more fairly to ability to pay should be considered and pushed for.
Alex Parr | Managing Director
For 2016, unpaid business rates were reported by the BBC to have totalled £52 million, and a proposed increase is unlikely to lower this figure. It’ll be interesting to see how the Welsh Government intends to recoup this money, and how this could lower the proposed rate increase. It’s encouraging to see that a relief is in place for the smallest companies, but this needs to be extended to cover more businesses and offset against the increased cost of minimum wage and pension provisions.
Over the last few years, employees have struggled through high inflation and static salaries, and Brexit has the potential to increase the cost of living further. Wolfestone employs 30 staff, 50% of which have been offered pay increases over the past two years. All employees are now also paid at least the living wage, but this will be difficult to sustain should rates double in April as forecasted.
David G Thomas | Manager
Whilst there is expectation that there could be an increase in business rates on some business properties, this is part of the normal process of rates review. It is good news that the small business rate relief scheme will continue, the value added from this discount will no doubt be really welcome. A number of properties may experience an increase in rates, thus adding to the overheads and placing increasing pressure to make ends meet. However, there are many properties that will remain the same or have their rateable value decreased; these businesses won’t feel an adverse effect.
There are always winners and losers, without a full picture it is difficult to gauge the overall impact. One final thing to say is that the WG has announced the rates discount grant for businesses in Enterprise Zones, again, this will be a welcome relief for businesses benefitting from being in an Enterprise Zone.
The thoughts and views of David Thomas are his own and do not necessarily represent the views of Pembrokeshire County Council.
Huw Davies | Finance Director
Any rise in company tax will always be met with a degree of nervousness in the SME sector; what compounds this issue is that currently the impact is still undefined, creating a degree of uncertainty in the business community. Furthermore, it is my view that the current method of assessment is out dated. Business rates being determined on the rateable value (or annual market rent) of the property takes little account of future affordability when setting the tax rate.
Companies are being taxed on a crit
eria they cannot control and in no way is this aligned to profit; in particular the retail sector, where space and location come at a premium, will be hit hardest. The consequence is that I can only see this enforcing the already anticipated rise in inflation in the economy. If instead, like all other business tax, the rates were based on turnover or profit it would mean that those who can afford the hike would pay it – surely this would be more consistent with the austerity principle? If the government is looking to support those affected, I feel there would be better value placed in reviewing how the tax is calculated.
That said, I remain confident that whist this rise is undesirable, the SME sector contains the entrepreneurs and businesses nimble enough to react quickly, so that they are not derailed by fiscal policy.
Wendy Weber | Head of Workforce Skills
Many of our High Streets are already looking sad and abandoned so the increase in business rates will exacerbate the existing problem in our towns and cities with shops, pubs and cafes likely to be worst hit. The increase will inevitably halt growth and recruitment in these sectors as they struggle to find ways to pay the price hikes from April; some may be able to operate online – but many will not go down this route and may opt to stop trading altogether.
Welsh Government has pledged £10m to help these small businesses but is not aligning this support to the English model of zero rates for businesses valued at less than £12K. In Scotland, the support is even more favourable for SMEs. Welsh Government needs to provide some certainty to SMEs currently struggling to survive and to encourage growth and recruitment.