Small business

Michael Imeson with the latest news for SMEs

Small businesses are pressing the UK Government to extend its Small Business Rate Relief (SBRR) scheme ahead of its introduction on 1 April, the same day that the revalued rating lists come into effect.

Small firms feel the burden of rates more sharply than larger firms. For a business with a turnover of £50,000, business rates represent 7.7% of sales, but for those with a turnover of £500,000 it is 1.4%, according to figures produced by the Federation of Small Businesses (FSB).

The new SBRR scheme will help the smallest firms, but the FSB says it does not go far enough. This year's rates revaluation will compound the problem, with high increases in rateable values (from which the eventual rates bill is derived) for retailers, and especially those in affluent areas. Average valuations will rise by between 13.1% and 20.5%, depending on the region, compared with the 2000 rating list.

For example, a shop in the south-east of England faces an average 29% increase in its rateable value (RV), which could mean an increase of about £1,800 in the final rates bill. By contrast, a factory in the West Midlands faces only a 6% RV increase, which represents a reduction of £150 in the rates bill.

The widespread increases in RVs will not only mean higher rates for many small firms but will also put many of them above the £10,000 RV threshold (£21,500 in Greater London) for the SBRR scheme.

The scheme gives 50% rate relief to businesses with an RV below £5,000. The discount decreases on a sliding scale of 1% for every £100 RV over £5,000, up to £10,000.

Businesses with an RV of between £10,000 and £15,000 get no discount, and those with an RV above £15,000 pay a surcharge to compensate the Government for the smaller firms' discounts. The scheme is therefore revenue neutral.

'Business rates are often the second or third highest outgoing small firms face,' said FSB's Roger Culcheth. 'Rates can be the difference between success and failure. The Government must act now to right this disparity. It should extend Small Business Rate Relief to all business premises with a rateable value of up to £25,000.'

The Forum of Private Business agrees. It backs the proposal for a higher £25,000 threshold, and for the surcharge to kick in at £40,000 RV instead of £15,000. 'This relief is badly targeted, will be short-lived in its effect and will actively disadvantage SME businesses occupying premises with an RV of more than £15,000,' said a spokesman. 'High street, hotel, pub, restaurant and tenanted businesses will be hardest hit.'

Business rates will continue to represent a disproportionate burden on smaller businesses, said the Forum. 'This would be compounded by any return of the control over the level of rates to local authorities, given their lack of accountability or responsiveness to business concerns.'

The Royal Institution of Chartered Surveyors is concerned about the complexity of the regulations, in particular the fact that ratepayers with an RV of £10, 000 to £15 000 'may not realise they will be required to apply for relief from the SBRR surcharge'.

A spokesman for the Office of the Deputy Prime Minister, the department responsible for the scheme, defended the scheme. 'The Government does recognise that some organisations think that the scheme doesn't go far enough,' she said. 'But increasing the thresholds for relief has a cost that would have to be paid for by other businesses.'

The ODPM says that increasing the threshold to £20,000 would mean an increase in bills for other ratepayers of around 2.8%. It therefore believes the scheme focuses relief where it is most needed, while at the same time ensuring that the cost to other ratepayers remains reasonable.

Michael Imeson is editor of Eclectic, an Institute of Financial Services magazine, and director of publishing agency Financial and Business Publications.