Discussing the unfolding story of business rates in an ever changing market

Level playing field or uphill battle?

Eighteen of the UK’s major retail chief executives, including those from Tesco, B&Q, Asda, Morrisons and Waterstones, have warned the Chancellor, Rishi Sunak, that online retailers need to pay their “fair share” of tax when it comes to business rates.

They maintain that the current system is “not sustainable in the long term (and) without reform, shops in the heart of the community will be at risk. They urge the government to, “use the upcoming budget to implement a fundamental reform of business rates, focused on reducing the burden on retailers and the playing field between bricks and mortar AND online businesses.”

This comes as the Office of National Statistics (ONS) recorded that retail sales at shops fell by 10.3% in 2020.

Tesco, one of the largest retailers, is calling for a 1% online sales tax to be imposed, alongside an urgent reform of the current business rates platform.  They go on to say, “We believe strongly that there should be a level playing field for all retailers, online and physical, which is why we propose a 1% online sales levy for businesses with annual revenues over £1 million, in addition to a 20% reduction in business rates”.

Tesco (Getty Images)

Business rates raise by £30billion

It’s been recorded that on average, business rates rise by £30 billion to the Treasury each year, of which £8 billion is paid by the retailers.  Since April, retailers have benefited from a 12-month rates holiday during the pandemic. 

A new tax rate is due to come into effect on 1st April 2021, the multiplier of this has risen from 34.8p in the pound in 1990, to more than 50p in the pound at todays level.

Protecting the high street or penalising growth?

Tesco’s letter seems to aim most significantly towards online retail giants, Amazon. The Seattle based company is taking a greater market share each month as it thrives due to an increase in online purchases and door to door deliveries during the ongoing pandemic. Staggeringly, Amazon’s UK sales for 2020 totalled £19.1 billion, a jump of 51% from £12.6 billion in 2019. 

Amazon Warehouse (business insider)

Amazon’s overall business rates for 2020/2021 are estimated at £71.5 million (0.37% of its retail sales) whilst paying corporation tax at 19% for their 100 sites dotted across the UK.

Amazon responded by saying, “We believe we have invested more than £23 billion in jobs, in the infrastructure of the UK since 2010” whilst “This continued investment helped contribute to a total tax contribution of £1.1 billion during 2019 and £293 million in direct taxes.” And, as for jobs, Amazon explained, “last year we created 10,000 new jobs, and last week we announced 1,000 new apprenticeships”.

Over to Rishi

Sunak is currently reviewing the way in which the business rates system works and is also separately considering a tax specifically for online sales services (E-commerce platforms).

Rishi Sunak Chancellor (Getty Images)

So far, the Treasury has spent over £300 billion to support the economy through the pandemic, pushing the national debt above £2 trillion. The repeated pressure to reform business rates, preserving a level playing field and creating government income could be a problematic balancing act and will be another test for the Chancellor of the Exchequer when he makes his budget statement on 3rd March 2021.

As we enter a period of uncertainty for the UK economy, we are working to adapt accordingly and therefore act in the best interest of all our commercial property clients from SME’s to global brands.

The Ministry of Housing, communities and Local Government issued a statement on 3rd February 2021 in response to the letter,

“Local Government is responsible for the administration of non-domestic rates in England. As part of this function, billing authorities will shortly begin preparing to issue annual rates bills to businesses.”

“The Budget will set out the next phase of the Government’s plans to tackle the virus, protect jobs and support business. Billing authorities in England should therefore consider issuing business rates bills after the Chancellor has set out his plan at the Budget.”

For now, it seems it’s all eyes on Rishi as we await to hear how he will approach this business tax debate.

Let us know your thoughts and insight – we’re always happy to hear how these issues are affecting our commercial property clients and their businesses.

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