Small retailers to benefit from surprise business rates relief holiday extension

In his Autumn Statement (98-page / 3MB PDF), George Osborne said small businesses would remain exempt from business rates until April 2013.

Larger businesses will be given the opportunity to defer 60% of the increase in their 2012-13 business rate bills, which they will be able to repay in equal instalments across the following two years, the Statement said.

Business rates are due to increase by 5.6% in April, based on September's retail price index (RPI) rate of inflation. Osborne said that the devolved administrations in Scotland, Wales and Northern Ireland would be provided with funding under the Barnett formula to allow them to take similar action if they chose to.

Osborne said that business rates were a "disproportionately large" part of small businesses' fixed costs. He said that the extension to the relief meant that over half a million small firms, including one third of the UK's shops, will have either reduced or no rate bills until the end of the next financial year.

Business rates, or non-domestic rates, are a tax on the occupation of non-domestic property, administered by local authorities in England. Small businesses are entitled to relief on a sliding scale if they generally occupy only one property and their rateable value is below a certain level.

Small business rate relief was doubled in October 2010. Eligible ratepayers currently receive small business rate relief at 100% on properties with a rateable value of up to £6,000, and a tapering relief from 100% to zero for properties with a rateable value up to £12,000.

The relief was originally set to run until September 2011, but was extended until 2012 in this year's Budget.

Neil Saunders, managing director of retail consulting firm Conlumino, said that the Chancellor's announcement was "very welcome news, especially for small businesses".

"The last thing retailers need at the moment is more costs, and the 60% deferral announced by the Chancellor will also help cash flow for larger businesses," he said.

However, using the rate of inflation at September 2011 as a means of calculating the increase in business rates due from March 2012 was, he said, an unsound method of doing so.

"The whole process of calculation needs to change, rather than using a measure of inflation which is dependent on a point in time and will be completely unrepresentative three to six months down the line," he said.

Tom Johnson, a commercial property law expert with Pinsent Masons, the law firm behind Out-Law.com, said that larger businesses were still facing the prospect of big increases in rates costs.

"Calculating the increase based on the record September RPI figures is perverse in the context of depressed growth projections. With a number of retailers struggling to keep their heads above water and casualties expected with the next quarterly rent round, this couldn't come at a worse time," he said.

"The option to postpone 60% of April's increase will be a modest help but the bills will still have to be paid in the end. Offering a delay stops well short of implementing a significantly lower increase," said Stephen Robertson, director general of industry body the British Retail Consortium. "The Chancellor should have taken the opportunity to switch to a lower CPI-based rise, as he has done for pensions and benefits, and the deferral scheme needs to be simple and workable unlike the last time this was tried."