Need for a rate relief scheme
D1. The 1998 White Paper Modern Local Government: In Touch with the People, said that we would consider introducing rate relief for small businesses when we introduce a scheme of supplementary rates (see annex C).
D2. The Government is aware of the higher relative burden of rates on small businesses. Research published by the Department of the Environment in 1995 showed that rates were a significantly heavier burden on businesses with turnovers of less than £100,000, than they were on larger businesses. For these small businesses rates represent more than 30 per cent of profits. This is over twice as great as for larger businesses generally.
D3. As with the supplementary rate, we have had extensive discussions with business representative bodies and the Local Government Association in developing these proposals for rate relief for small businesses.
Outline of the scheme
D4. The 1995 research showed that most businesses with turnovers of under £100,000 occupied properties with rateable values of less than £5,000. The relief scheme would therefore be targeted at such properties. However, rateable values of properties which were less than £5,000 increased on average by 17.5 per cent as a result of the revaluation on 1 April 2000. This suggests that, in order to target the relief on the same group of properties, we should now be looking at those with a rateable value of around £6,000 or less.
D5. We envisage a scheme whereby substantial relief of 50 per cent is given to properties with rateable values of less than £3,000. The percentage of relief would be gradually reduced for properties with higher rateable values, up to £6,000 where it would still be at a significant level - 20 per cent of the rates bill. To avoid a sharp step change in bills for properties above that level, relief would continue to apply, though at a gradually diminishing level, until £8,000 in rateable value was reached. Any property with a rateable value above £8,000 would receive no relief.
Concentrating the relief on businesses most in need
D6. Not all small properties are occupied by small businesses. To better target relief to where it is most needed, businesses could be asked to apply for relief instead of it being automatically given. A business certifying that it met given criteria would then receive the relief.
Grounds for qualifying for relief
D7. A valid application could only be made if the property had a rateable value below the upper threshold of £8,000.
D8. There is a wide range of criteria that could be used to test if a business were small. Any such test used should be simple to administer, for both businesses and councils, to avoid placing unnecessary administrative burdens on either. Examples suggested are that the business must certify:
- that its turnover did not exceed £200,000 in the last year; and/or
- that it employs fewer than six people; and/or
- that it has only one property (namely the one for which relief is being sought).
Renewal of relief
D9. After relief has been granted, changes in circumstances might mean that the property no longer meets the tests for receiving relief. For example, the business occupying the property might be taken over by a larger business.
D10. It would be difficult for the billing authority to ensure that the property continued to qualify for relief that had been granted some time in the past. For this reason applications for relief would need to be renewed each year. Once granted, relief would not be removed in-year regardless of any changes in circumstances.
Exclusion of certain types of property
D11. There are some types of property that might be ruled out of the scheme from the start, such as an advertising hoarding or a telecommunications mast.
D12. As the scheme would be a response to the fact that rates amount to so high a proportion of the profits of small businesses, there is a case for excluding non-profit making bodies. Charities are already entitled to 80 per cent mandatory rate relief on property used wholly or mainly for charitable purposes and there is also a case for excluding recipients of this relief from the small firms relief scheme.
D13. Local authorities also have the discretion to grant relief to other properties used by charities or by other non-profit making bodies for recreational, philanthropic or educational purposes or for social welfare, science, literature or the fine arts. But local authorities do not always give such help. In those areas, the non-profit making body could be in a worse position than other small ratepayers, with higher bills than commercial occupiers of similar properties. So there is also a case for including such non-profit making bodies in the relief scheme (see annex E) on rate relief for non-profit making sports clubs).
Interaction with other rate reliefs
D14. There will be circumstances where properties eligible for the relief for small businesses would also be receiving other forms of rate relief, which may be at a higher or lower level. For example, the village shop rate relief scheme provides mandatory relief of 50 per cent, for the sole shop or post office in a designated rural settlement, with a rateable value less than £6,000. This is a higher level than the proposed relief for small businesses for properties between £3,000 and £6,000 rateable value.
D15. We propose that where properties are eligible for other reliefs, they should be able to receive relief up to the level of whichever is the higher. To do otherwise would be unfair to the ratepayers concerned. Because the relief for small businesses would be structured differently from other rate reliefs, they would still need to be calculated separately. Where other mandatory reliefs apply, the relief for small businesses would apply first, then any other reliefs which brought the total amount of relief to a higher level. So, for example, a qualifying village shop with a £6,000 rateable value could receive 20 per cent relief for small businesses, and in addition village shop relief bringing the total relief to 50 per cent.
D16. As with other existing reliefs, the relief for small businesses would apply to the rate bill after any adjustments for transitional relief under the scheme introduced for the revaluation on 1 April 2000.
Funding the scheme
D17. The scheme would be funded by a modest increase in the national rate multiplier. Depending on the final structure of the scheme, we estimate that it could be funded by an increase in the multiplier of less than a penny. The exact amount would depend on the number of small businesses that applied for the relief, if it did not apply to all small properties.
D18. We would expect that any such increase in bills would be in addition to any transitional relief that may apply to a property. This will ensure that all properties not receiving the relief for small businesses will contribute to the costs of the scheme.
Monitoring effectiveness
D19. Whatever type of rate relief scheme for small businesses is introduced, we will ensure that its effectiveness is monitored once it is in operation. We will want to be sure that it is correctly targeted on those who need it, bringing real benefits to those who receive it without placing undue burdens on those who pay for it. If necessary, the scheme will be changed over time in the light of experience.
Rate Relief for Small Businesses: Points for consultation
- Views are sought on whether relief should be directed towards small businesses rather than small properties; and if so, which combination of tests should apply, including alternatives to the ones illustrated.
- Suggestions are invited as to types of property or occupiers that should be excluded or included
.[ Annex C ] [ Contents ] [ Annex E ]
Published on 19 September 2000
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