With the new year well underway, time is short before the 2017/18 tax year begins. Alongside the usual forms and filings, there is another concern for entrepreneurs this year: the sharp increase in business rates.
Since the much-delayed business rates revaluation was finally announced last year, the moment of impact–which is set to devastate many commercial property owners–has approached at rapid speed.
Experts in the property tax field, Gerald Eve, have pointed out that retail businesses will be particularly hard-hit by the recent rise in rates. On their 2017 revaluation website, head of business rates Jerry Schurder has described the costs as being “out of touch with reality”. Gerald Eve observe that as profits from brick-and-mortar stores decrease, the rateable value of properties has continued to rise. This will make the simple act of staying solvent ever more difficult for emerging retailers.
While high-profile London businesses will suffer under this revaluation, so too will many startup and pop-up businesses, struggling to get off the ground in an already volatile economy. There are, however, a number of ways to combat the often-brutal levy which business rates weigh upon SMEs.
Start doing charity work
One of the most well-known exemptions to business rates is the charitable exemption. If a certain proportion of your building is dedicated to charitable activity, you will be eligible for charitable rate relief, which can be up to an 80% reduction of the standard business rate for your property.
While primarily intended for buildings operating solely for charity work, you should contact your local council to see if you may be eligible for dedicating part of your business practices to charity. This could include running community or youth activities from the premises.
As this Forbes articles shows, incorporating charity into your business model is becoming increasingly popular. The key tip Forbes mentions, however, is to be genuine about what you are doing. Yes, dedicating your business to charity work can help you pay your business rates, but you should do it because it is good for society and for your conscience, not just for your chequebook.
The combination of a lighter business rates bill and an increased participation in the community will no doubt increase the standing of your business, financially and morally.
Keep your business ‘small’
Spun during the announcement as a huge victory for hardworking entrepreneurs, small businesses are given some business rates exemptions, particularly if they only operate out of one property. However, these are only applicable if a small business’s rateable value falls below £25,500 (or £18,000 outside of London).
As many SME operators will know, this is a particularly low rateable value, but this is not the only problem. Despite the government’s rhetoric to the contrary, this system will actually discourage growth. If there is room for your business to grow—by either moving to a larger premises or opening a second office—then the additional cost of business rates could eat into a large chunk of your net income.
If your business is growing unstoppably, but you don’t want to pay the increased costs of a larger premises with a higher rateable value, there might be a way to solve your problems. Hiring staff who work remotely can allow you to broaden your business’s reach whilst avoiding the financial pitfalls brought about by high rates.
London based accountants 3 Wise Bears (who specialise in working with contractors and small businesses) have pointed out that a virtual workforce allows you to tap into the expanding global pool of talented freelance workers on a basis that fits your needs. By engaging in a more flexible working style, you can keep your costs down in a way which could benefit your business in the long term.
As business rates relief is handled differently in Scotland, Ireland and Wales, the exemptions your business may be eligible for will depend on the country in which you are based. To find out more about how you can ease the burden of increased property tax, contact your local council or seek advice from private business rates consultants.