Many retail, leisure, and hospitality businesses in England could get welcome relief from changes to business rates for 2022. In his autumn budget, Chancellor Rishi Sunak announced freezing the business rates multiplier, a temporary cut in some business rates, and exemptions for green investments.
What does the series of changes and reforms for 2022 business rates mean for your business? This article explores the impact the measures announced in the autumn budget could have on businesses in England.
Business Rates for 2022 — An Overview
The tax relief package for small businesses consists of £7 billion over the next five years to help struggling businesses. One notable change is that the Government will freeze the statutory 3.1 per cent increase in business rates for 2022. Additionally, retail, hospitality and leisure businesses can claim up to 50 per cent of their bills up to £110,000.
Also of note in the Chancellor’s speech was a relief for businesses investing in renewable energy generation and storage. The UK Parliament stated that businesses could get 100 per cent relief on “eligible plant and machinery”. There is also 100 per cent relief for joining in low-carbon heat networks.
Relief Measures in Business Rates for 2022
Businesses in “bricks and mortar” establishments have struggled to pay business rates for many years. As a result, some analysts have called for reforms to help small businesses pay rates bills. So, the autumn statement aimed to address the concerns of some businesses by providing some relief.
Business rates multiplier frozen
Businesses throughout England can enjoy some relief as there will be no increase in business rates for the 2022/23 financial year. Business rates are typically subject to a statutory annual increase of 3.1 per cent, based on the Consumer Price Index (CPI). However, due to soaring inflation, the Government decided to keep business rates at 49.9p for small businesses and 51.2p for large companies.
Business Rates Reforms for 2022
In an effort to support the hospitality, leisure and retail industry, eligible businesses can claim a 50 per cent discount on rates bills. This allows these businesses to get a discount of up to £110,000. However, the caveat is that the cap is per business, not per property.
At the time of the announcement, there was no information on which businesses would be eligible. However, reports indicate the up to 90 per cent of retail, leisure and hospitality firms would qualify for the business rates relief.
It’s important to note that landlords with vacant business premises won’t receive any relief.
Relief to help meet net-zero targets
More frequent valuations of properties will incentivise businesses to decarbonise their premises. In addition, from 1 April 2023, businesses making building improvements to reduce their carbon footprint will enjoy rates relief. The goal is to help the country meet net-zero targets for decarbonisation. Once the work is completed, eligible businesses can apply for a rates freeze for 12 months.
Eligible building improvements have not yet been confirmed by the Government. The scheme will run from 2023 until 2028 when the Government carries out a review.
Relief for investing in renewable energy and battery storage
Companies will be exempt from rates when investing in decarbonisation technology to provide more incentives for businesses to cut carbon emissions. Therefore, investing in zero-carbon output energy generation and battery storage will help companies to lower their rates bills. These could include wind turbines, rooftop solar panels, and battery storage. Furthermore, businesses installing electric vehicle charging points will also benefit.
Relief for investing in low-carbon heat networks
Businesses that have their own rates bill and operate in a separate building can get 100 per cent relief if they connect to a low-carbon heat network. This involves connecting to an ‘energy centre’ that provides heat to several buildings in the area. According to Government sources, “a heat network is one of the most cost-effective ways of reducing carbon emissions from heating”.
Reforms to Business Rates for 2022
To implement the changes and provide relief to struggling businesses, the Government will reform certain areas of the business rates system. However, it isn’t clear the level of impact these will have on certain businesses. In addition, budgeting will be made more difficult by the new regulations. This could mean that some businesses end up paying too much.
Here is a summary of how the business rates reforms could take place over the next five or six years.
Transitional Relief Scheme continues for one year
During the 2022/23 tax year, there will be a one-year extension of the Transitional Relief Scheme. Initially, this was to last from 2017 until 2022. However, this will now apply throughout the next tax year.
What does this mean for businesses? During the 2022/23 business rates bills will be capped at the following rates:
- Fifteen per cent for properties up to a rateable value of £20,000 (outside of London)
- Twenty-five per cent for properties in London up to a rateable value of £28,000
- Twenty-five per cent for medium properties with a rateable value of up to £100,00
This change for the 2022/23 tax year was necessary because valuation cycles will change.
Three-yearly revaluations for business properties
From April 2023, property revaluations will take place every three years. This shortened cycle means property owners will pay rates more in line with their current market value. In addition, it adds a strong incentive to make significant building improvements to decarbonise properties.
This change replaces the current six or seven-year cycle, which many business owners say damages their businesses. Extending the Transitional Relief Scheme keeps things at a status quo for the next tax year.
However, there are several caveats to note with the shortening of property revaluations. These are the following:
- Duty to notify — Businesses must notify the Valuation Office Agency (VOA) if renovations or building work changes the property’s physical characteristics.
- Annual confirmation — It will be compulsory for every business to confirm with the VOA that current assessments are correct.
- Assessment challenges — The new changes mean that businesses must lodge any challenges within a three-month window from the start of the listing or after they start paying rates.