Business rates are widely seen by commercial enterprises, both large and small, as the tax on business that is the least fairly applied, poorly administered and most in need of reform.
The principle reasons for the unpopularity of business rates are:
- Their sheer scale in relation to rental values, rising from 34.8 per cent on introduction in 1990-91 to 49.3 per cent in 2018-19.
- As a general tax on business, it takes no account of the financial circumstances or performance of the business on which it is levied. Corporation tax, by contrast, is assessed on the profits of a business and therefore falls on those businesses that are in a position to pay it. Business rates make no such distinction. Being payable without relief – even during tough economic times – only adds to their unpopularity.
- Business rates are always assessed on an out of date measure, specifically the market rent of the business premises on which they are charged. Rental values are only assessed every five years and then only applied two years after the valuation date. Consequently the charge lags market conditions by between two and seven years at any given time.
This has two consequences. First, the increases in business rates are usually more substantial when they occur and are therefore more challenging for businesses to plan for and absorb. Second, when rental values are falling, businesses may for several years be paying higher business rates than the economic value of their premises justify.