When somebody first mentions business rates, it can be a little daunting. As a commercial property owner/tenant, these are incredibly important, but the system is a little convoluted. In Isle of Wight, business rates on commercial properties can be overvalued, and sometimes a reduction is possible. So, if you are just curious, or even perhaps hoping to reduce your own business rates in Isle of Wight, we have compiled a few key things for you to know.
There were 4,730 registered businesses as of 2019 in Isle of Wight. Business rates will be applicable to most of them, and it is the responsibility of the local authority – Isle of Wight Council – to collect them. Business rates are a tax charged to properties that are used for non-domestic/commercial purposes (this gets a little tricky for people who work and live in the same building, and we recommend checking the Valuation Office Agency website to see how your property is rated). While the local authority is responsible for collecting business rates in Isle of Wight, they are in fact set by the Valuation Office Agency (VOA).
According to the International Property Tax Institute (IPTI), The VOA is the largest valuation agency in the world. Not only that, but experts have widely predicted that UK business rates will increase by 12% in the new Rating List. The current Rating List runs from 1st April 2017 until 31st March 2023. As of 2023, business rates will be re-valued every three years. Trends for this show it is an upward only tax, with the government likely to be making regular increases. The current Rating List was extended due to the hardship businesses suffered during the pandemic.
A report compiled by Centre For Cities highlighted four key problems that commercial property owners and tenants found with business rates: business rates are too complex, they discourage investment, they do not reflect local economic realities, and finally, that business rates do not boost local growth.
While most commercial property owners and tenants would certainly agree with these findings, the short and long of it is that local authorities are just too underfunded to be able to cope without this source of income; including Isle of Wight, where business rates collected by the local authority, have totalled over £112 million in this Rating List so far.
So where exactly, is all this money going?
Currently, local authority’s keep 50% of the income from the business rates they collect. The other 50% goes to central government, where it is supposed to then be divided into grants for other local authorities across the UK. In Isle of Wight, business rates are applied to every commercial property, however, some properties benefit from government reliefs whilst others receive little or no support – such as the accommodation and food services industry, where businesses such as bed-and-breakfasts, which in 2020 made up 13.5% of the businesses in the region.
It is predicted, that business rates across the UK will generate approximately £28 billion for HMRC in the 2023 tax year.
RVA Surveyors, a business rates reduction specialist, found that half of the businesses assessed could reduce their business rates liability, and according to the VOA approximately only 35% of properties across the UK have even been reviewed. While there are only eight months left in the current Rating List, it is still possible to achieve a reduction for businesses in Isle of Wight. Business rates can be the third or fourth biggest cost for any commercial property owner or tenant.
Every year, the HMRC puts aside around £1.5 billion just for business rates rebates, but how much of that has really gone to businesses? By January 2022, there were roughly 1.9 million commercial properties in the UK according to Parliament findings. Of these commercial properties, only 646,650 Checks (first step of the VOA’s Check, Challenge, Appeal, process) had been lodged by March 2022 with the VOA.
Anthony Hughes, Managing Director of RVA Surveyors commented:
“There is no doubt that the government sees business rates as an efficient tax. It is widely agreed that the convoluted and complex nature of the business rates system creates unnecessary obstacles for commercial property owners and tenants to navigate. Parallel to this, the length of time it takes to achieve a reduction needs to be vastly improved, in order to give businesses back what they are owed.”
There are many reliefs available to businesses that meet the relevant eligibility criteria in Isle of Wight. Business rates reliefs in England and Wales can be applied to any manner of business, and for a comprehensive list and possible eligibility, we suggest checking the VOA website. While reliefs can be an unexpected boon to commercial property owners and tenants, some of these are ending soon.
A reduction in your business rates could be an invaluable cash boost, especially as the cost of living crisis continues. The long-term benefits of receiving a reduction – or even potential backdated savings – could be instrumental.