Business Rates: The good, the bad and the ugly

Commercial property owners and occupiers need to be aware of significant changes in their business rates liabilities starting this month, warns commercial property specialist Prop-Search – the good, the bad and the ugly.

First the good.  The Government’s Retail, Hospitality and Leisure Business Rates Relief scheme is being extended for the tax year 2024/25 and is worth an estimated £2.4 billion.  This will provide eligible occupied retail, hospitality and leisure properties with a 75% relief, up to a cash cap limit of £110,000 per business.  The aim is to support businesses that make high streets and town centres a success and help them to evolve and adapt to changing consumer demands.

Occupiers of larger commercial properties will unfortunately face a hike in business rates from this month.  Business rate liabilities are calculated by applying a multiplier to the Rateable Value of a property.  For England, this has been frozen since the Covid pandemic at £0.499 for properties with a Ratable Values of under £51,000 and £0.512 for those above.  However, whilst the small property multiplier remains unchanged for 2024/25, the large property multiplier is increasing by 6.7% to £0.546. 

And finally, the ugly.  Hidden within the Chancellor’s Spring Budget was the outcome of last year’s consultation - Business Rates Avoidance and Evasion.  From 1 April 2024 business premises must be re-occupied for 13 weeks rather than six to qualify for a further period of empty rates relief.   

Samantha Jones, an Associate Director of Prop-Search, said: “Since 2008, after an initial period of relief - three months for shops and offices, and six months for industrial properties - owners of commercial properties have been liable to pay 100% business rates whilst a property is vacant.”

“However, this legislation allowed for a ‘reset’ of the relief if the property was occupied for six weeks.  After the six weeks of occupation, the owner would then again receive three months or six months relief.  This process could be repeated as many times as needed until the owner found a long-term tenant, typically providing for a 65% reduction in business rates payable.”

The changes announced at the Budget have more than doubled the 'reset' period to inhibit the practice known as ‘box shifting’, in which landlords repeatedly occupy properties for short periods of time in order to claim further Empty Business Rates Relief.  As the property owner still pays rates for the occupation period, this overall means that more rates will be paid - the Treasury estimation is an additional £40 million - and only a 50% discount on average achieved.

Samantha added: “Few if any landlords would want to leave their properties empty for any period of time - the ideal would be a regular income stream from a viable tenant  It is assumed most commercial properties lie vacant principally due to a lack of market demand and the impact of this measure might just be a further disincentive to invest in the commercial sector, rather than something which could revitalise high streets and other areas where box shifting is perceived to be a problem.”