Business rate row shows dangers of tinkering with tax over reform

By Stuart Hicks, Director.

Scotland seems to be tying itself in knots at the moment after a loophole in plans for small business rate relief mean hundreds of SMEs are still facing massive hikes this year.

Like England and Wales, thousands of Scottish businesses were bracing themselves for large business rate hikes following on from the delayed Revaluation last year. As lobbying intensified Finance Secretary Derek Mackay announced plans to help the Scottish SME market and soften the expected financial hit.

But since then, many firms have been identified as missing out on the aid with around 100 small businesses seeing their business rates more than double. Research by Labour brought the issue to light last week.

The anomaly exists despite Mackay introducing a cap on business rates rises of 14.75 per cent. However, business rates are calculated by multiplying a business’s Rateable Value (RV) by the poundage rate and then applying any reliefs such as the Small Business Bonus Scheme.

The loophole arises because the cap applies to gross rates bills before relief from the Small Business Scheme is taken into account.

Meanwhile the Revaluation has also seen the RVs of businesses increase so that they are no longer eligible for as much relief from the Small Business Scheme.

One example cited a firm whose rateable value increased from between £10,000 and £12,000 to beyond £18,000 would lose 50 per cent rates relief and end up paying the full whack. Labour believes its figures suggests 95 business properties were affected in this manner, suffering a business rates rise of 129 per cent.

According to Labour, a total of 73 business premises saw their rateable value increase from between £10,000 and £12,000 to between £15,000 and £18,000 – a change that saw their relief downgraded from 50 per cent to 25 per cent and led to a 72 per cent business rates hike.

A further 483 business premises saw their RV increase from between £12,000 and £18,000 a change that saw them lose relief of 25 per cent and having to pay the full amount. Those affected saw business rates hikes of between 35 per cent and 53 per cent.

Feelings are running high over the issue at the moment and we are waiting to see if Mackay can or will do anything to help those left behind. If anything, this latest row highlights the dangers of tinkering with a tax system that is actually in need of root and branch reform.