UK business rates: A view into 2023 and beyond

As we look towards business rates adjustments in 2023, this year’s annual business rates review carries a strong and unremitting theme of seismic change that is likely to come at pace.

Change and uncertainty lies ahead

Next year heralds the beginning of a new business rates cycle followed by a move to more frequent revaluations - every three years from 2026.

Moving to more frequent revaluations will represent a fundamental change to the business rates system which should ensure ratepayers see their assessments updated quicker to reflect changing economic conditions.

The 2023 cycle is likely to be the most subjective revaluation yet with the volume of transactions falling by 65% to 70% during the pandemic. Furthermore, the impact of Covid-19 on estimates of open market rents by tax authorities are likely to have been underestimated giving rise to a right to appeal.

Revaluations always create winners and losers. Whilst we will not know the exact position until the end of the year, through the publication of the draft lists, it is likely that we will witness bigger shifts in rateable values than seen in previous cycles. Ratepayers will only have until 1st April 2023 to prepare for their new tax liabilities.

Longer term, a more agile and responsive system should help to improve distributional fairness but that will come at a cost through new administrative burdens. Businesses will need to provide information relevant to their valuation – such as changes in lease agreements as well as trade and accounts information, together with an annual confirmatory return. Failure to comply will lead to financial penalties and a loss of the right to appeal.

We remain deeply concerned that the Government is aspiring to deliver too much too quickly and lessons from the past have not been learnt.

New business rate exemptions and temporary reliefs to support investment

April 2023 will also see the introduction of new financial support with an exemption from business rates until 2035, for investing in plant and machinery used in onsite renewable energy generation and electricity storage.

Whilst a new 100% improvement relief will free businesses for 12 months from higher business rate bills caused by qualifying improvements to an existing property.

These new measures should reduce the cost to businesses investing in their premises as they grow, enabling them to adapt to meet rising demand, enhance productivity and invest in onsite green technologies.

Lowering the burden of business rates for the high street

The Government continues to explore the possibility of increasing taxes on online shopping to fund business rates relief for retail to rebalance the tax system, which is often viewed as skewed against bricks-and-mortar retail.

Levelling up mustn’t be consigned to the scrapheap of easy promises

Levelling up must truly reduce the inequalities that exist between different regions ensuring no communities are left behind. A continuation in current policy into the new lists for 2023 of asking underperforming regions and sectors to pay more in tax, through downward transition, to help subsidise those better faring better economies, would be disastrous for many.

Inflationary headwinds during a cost-of-doing-business crisis

The elephant in the room, reform of the multipliers and cutting the burden for all, much to the dismay of business, has been kicked into the long grass through freezes to tax rates during the pandemic. Whilst the 2023 revaluation will be revenue neutral, and the level of multipliers reset, the overall tax take will still rise in line with September’s headline rate of inflation.

With inflation hitting the UK harder than any other major economy, without intervention and a change of direction by Government, the overall business rates tax take could rise by £2.6 billion next April. That would be unthinkable during a cost-of-doing-business crisis.

Making Check, Challenge, Appeal work

As we come to the end of the current cycle, we are proud of our achievements. Whilst the system of Check, Challenge, Appeal has resulted in adverse criticism and relatively low levels of ordinary valuation matters, we have made the system work for our clients.

At Challenge we pursued around the same number of cases as the next 9 largest agents combined, whilst at Appeal 50% of all cases cleared and settled by the independent Valuation Tribunal Service involved Altus Group clients.

We achieved that without compromising on outcomes.