APRIL 2017 - Will the 2017 Business Rates Revaluation result in an increase in business failures?
1 April 2017 saw a revaluation of business rates on non-domestic properties - this is a UK wide revaluation which will undoubtedly have an impact on existing Scottish businesses across all sectors and may deter some start up businesses from ever getting off the ground. This revaluation may have an impact on the rise of corporate insolvencies and this month’s blog aims to explore this prospect.
The most notable impact will stem from the fact that the revaluation has already been postponed from 1 April 2015 which means that some businesses will be subject to a substantial increase in their rates bill as the amounts due may rise significantly since the last revaluation was 1 April 2010. The chances are many businesses have not provided for this increase in their cashflow forecasts.
Interestingly, the revaluation itself will not change the overall amount of business rate revenue generated for Scotland. However, it will affect businesses where their property values have increased over the period, this will therefore hit certain parts of Scotland more than others. This poses a real threat to the viability of businesses already struggling and the impact could be particularly felt in the hotel and leisure industry, on the High Street and in the renewables sector. Scottish Government’s recent move to cap business rate rises at 12.5% for the businesses in the hospitality and licensed trade and for office premises in Aberdeenshire for one year to allow for a report on whether a more equitable process for rates evaluation can be agreed and subsequently applied, together with a package of relief for the renewables sector may provide a modicum of breathing space in the short term. However, longer term this review provides no guarantees and many businesses will experience financial difficulties with even the smallest of rises.
Another issue which may affect licensed premises is where liability for common charges is based on assessed rateable value. Two problems may arise as a result of the revaluation, one being that the licensing trade will face a disproportionate share of common charges as there is a turnover element taken into consideration when assessing ratings in the hospitality sector and two, whilst the aforementioned cap may provide some temporary relief, it is likely that in assessing common charges, the full rateable value may be used. The inevitable result being higher common charges to pay, even if the temporary cap exists.
There will be an opportunity for a business to appeal the revaluation within 6 months of the valuation (unlike in other parts of the UK an appeal in Scotland will be free), the longstop date therefore being 30 September 2017 but the sting in the tail is that the existing business rate liability must continue to be paid during any appeal and will only be reimbursed after, and if, the appeal is successful and the rateable value is subsequently lowered. This rebate may come far too late for some businesses who even before the end of the appeal period will be forced to seek the advice of an Insolvency Practitioner due to the risk of continuing to trade whilst insolvent. This is because continuing to pay existing rates during the rigid appeal period will place inevitable cashflow restraints on a businesses which are already struggling to pay current rate arrears and may also have substantial arrears to HM Revenue & Customs for VAT, PAYE/NIC and Corporation Tax, together with the ongoing requirement to service bank debt and on going trade creditors.
At a time when many other economic, political and social factors are also making it increasingly difficult to succeed in business in the UK this may signal the final blow to some of the most vulnerable of those businesses in these sectors north of the border.
With thanks to TLT Solicitors to their technical input to this blog.