Last week business owners found out about changes to their business rates in the first revaluation since 2010.
While the changes have been welcome news to hundreds of thousands of businesses around the UK, not everyone is celebrating. London will see business rates spike after biggest changes in a generation
What are the changes?
It was expected to provide some relief for many of the smallest businesses when the changes were announced in the Budget 2016 in March. With more than 600,000 small companies given
business rate relief or cuts, changes were met as welcome news.
However, for many firms based in London, the opposite is true. Many are facing sharp rises while businesses in the north are either seeing no changes or reductions.
The changes include an increase in rates relief to £12,000, meaning that those with business premises with a rateable value of £12,000 and below will receive 100% relief from business rates. Those with values between £12,000 and £15,000 will be given tapered relief.
George Osbourne said that businesses could see savings of around £5,900 a year, taking away a huge burden that stifles small business growth.
How will businesses miss out?
Business rates are calculated partly by the rentable value of a property. The Valuation Office Agency (VOA) has done a revaluation of rentable values which means that many businesses are finding that they are going to be charged a much larger amount.
This means that businesses are going to see their rates increase in line with the property value. London properties which have shot up in value since the last valuation, the rates are going to rise dramatically. Dover Street in Mayfair is set for a 415% increase alone.
This will affect businesses because their expenses will also have risen dramatically. This means that they will likely have to revisit their business model and make some important changes to ensure survival and a good profit margin.
One such change is that they will have to change their pricing structure, increasing the amount their services or goods cost, passing the bill effectively onto their customers. This could result in lost business because they are then not as competitively priced.
Andy Atalla, founder of online marketing agency atom42 is expecting his business rates to rise from around £45,000 to £57,000. This, along with high rent prices from doing business in London mean that his pricing structures for his customers are becoming less competitively priced.
“Higher costs and taxes inevitably have a direct impact on how much we charge our clients,” he said. “This makes us less competitive in the market, and potentially we lose income to offshore business, based in economies such as India, who are able to offer similar services at lower costs.”
Another option is to let staff go, to cut down on the wage bill which has also increased for many businesses due to the new Living Wage.
The changes will come into force in April 2017, giving businesses some time to adjust to their new rates and make any necessary changes. For some businesses it will mean making some difficult decisions.