English retailers hoping for enterprise charges lower in 2023 threat disappointment
UK retailers hoping for a sharp cut in corporate rates in 2023 risk disappointment after the government apparently ruled out an abolition of so-called fiscal neutrality on business property tax, experts warn.
Chancellor Rishi Sunak frozen business rates in England until April 2023 in last week’s budget. For the first time since 2017, the taxable values based on annual rents will then be reassessed.
Commercial rents – especially from shops – have since fallen sharply in many areas, reflecting both the effects of the pandemic and longer-term trends in online shopping. In theory, corporate rates should be adjusted accordingly as the government delayed the revaluation for a year to ensure the rent reductions were taken into account.
But the conclusions of a Treasury Department’s review of business rates published with the budget suggested that ministers have no intention of ending the legal requirement that any revaluation must be revenue neutral for the Treasury Department.
According to this rule, if taxable values fall overall, the multiplier – the factor used to convert these values into an amount payable annually – must increase in order to maintain the government’s tax revenue. Corporate tax rates are the only significant tax where such a requirement applies.
In previous revaluations, the multiplier was reset to a lower level after the aggregate taxable values increased.
Jerry Schurder, head of business rates at consulting firm Gerald Eve, said it was possible that this could increase the multiplier significantly in 2023, undoing much of the benefits of lower taxable values. It would then be subject to an annual increase based on consumer price inflation.
The consultation for the review found, according to the Ministry of Finance’s interim report, that “a large number of respondents were against the current system of fiscal neutrality”.
Respondents felt that the rule prevents the tax burden from adapting to changing economic conditions, introducing complexity and reducing predictability, she added.
However, the final report barely mentioned the issue and preferred to emphasize the importance of corporate tariffs as a source of income and the advantage of the recent multiplier stops.
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Schurder said this almost certainly means that the tax neutrality rule will be maintained as its abolition would require legal regulation. The government has not denied this interpretation; The Treasury said: “We will consider the multiplier for 2023 next year.”
Another uncertainty is the easing of transition, which only applies in England and which cushions the effects of rising ratings for some by limiting the passing on of falling rents for others. Retailers complain that thousands of stores, especially in the north of England where rents have fallen sharply, are paying more in installments than rents.
Chris Wootton, chief financial officer of Sports Direct owner Frasers, said “companies will not pay fair prices from re-based values” if the auxiliary system persists. “Likewise, landlords will not be able to accept lower rents or no rents at all indefinitely. Reshaping the tariff system to a sustainable level is just as important for them as it is for retailers. “
Transitional relief could mean that Amazon and other tenants of large distribution centers – whose rents have risen due to the increasing demand for online shopping – are protected from corresponding price increases, while shops in the shopping streets benefit less from falling rents in their own fee statements.
However, the government has committed to further consultations on the design of the transitional aid and will announce its conclusions in autumn 2022 before the 2023 reassessment.
