Businesses in England are heading for an ‘iceberg’ next spring with interest rates set to rise by up to £3billion due to soaring inflation, industry groups have warned.
They said companies that benefited from an upcoming revaluation could see those benefits eroded as a result, while those that lost would see their losses magnified.
Business rates, taxes paid by businesses based on the rental value of the property they occupy, increase at the start of each tax year based on consumer price inflation for the previous September.
The annual hike has been rolled back for the past two years to help businesses deal with the coronavirus pandemic. But the Bank of England predicts inflation could hit 11% later this year, potentially leading to a sharp rise in rates in 2023.
Louise Hellem, director of economic policy at the CBI, called on the next Conservative administration to ease the burden: “There is not a moment to lose,” she said.
“Unless urgent action is taken to ease the burden of activity rates, businesses face bills rising in April by around 10% just from inflation,” he said. she stated. “This is a threatening iceberg for businesses already reeling from soaring post-pandemic energy costs.”
Craig Beaumont, head of external affairs at the Federation of Small Businesses, raised the issue with Chancellor Nadhim Zahawi at a meeting last week as he appealed for help with ‘taxes before profits’.
“This coming year, small businesses will face a double whammy of inflation and revaluation, with some businesses potentially facing huge hikes of 200%,” he said.
Next year will see the first reassessment of commercial property values since 2017. Many occupiers expect deep reductions as rents have fallen sharply in many areas.
However, by law, revaluations must be fiscally neutral to the Treasury in real terms, meaning that without intervention, the overall fiscal take in fiscal year 2023 would be broadly the 2022 figure plus an inflation hike. .
Property adviser Altus Group said that based on the Bank’s inflation forecast, the tax levied on business rates in England – the tax is delegated to Scotland and Wales – could rise by nearly £3bn pounds sterling in 2023.
Robert Hayton, UK chairman of Altus, said ministers ‘should put an end once and for all to this ridiculous policy of increasing the tax base through inflation’.
The Treasury has come under pressure to cut corporate rates, with the CBI calculating that UK property taxes are four times higher than in Germany and 50% higher than the G7 average as a share of GDP.
But a review last year ruled out sweeping changes. The government has instead consulted on whether to impose an online sales tax to help high street retailers. Another consultation on transitional relief, which softens the impact of reassessments by removing increases for some companies but limiting reductions for others, closed last week.
Beaumont said ministers ‘should remove transitional downward relief’ and called on them to raise the cap on corporate rate relief to £25,000 ‘to take smaller businesses out of this anti- regressive growth”.
Currently, only businesses occupying premises with a rateable value of less than £12,000 are exempt from tax.
The Treasury said decisions on the multiplier and on transitional relief would be made in accordance with the standard budget process.