Tim Bunker: Companies getting raw deal under business rates scheme

THE most popular tax is one for which you, or I, are not liable. As a politician, popularity is fundamental, particularly in the year of an election.

Therefore, this week's announcement of the draft rateable values for Scottish commercial properties has been heralded as a victory for small businesses, with politicians saying a firm can save up to 3,400 more in 2010-11 under the small business bonus scheme.

However, why should all such businesses obtain automatic relief because they are situated in a low-value property?

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The assumption appears to be that all small firms are in financial difficulty, whereas those above the upper threshold of rateable value 25,000 are fine and stable.

In my view, rates relief to business could be better targeted if applied in a discretionary form. Local authorities will continue to have the power to grant discretionary rates relief to businesses on an annual basis. However, in the past, this has been granted in only a very limited form, probably due to the lack of finance.

Rather than grant small business relief across the board, it would seem more equitable to have a larger discretionary fund to which all businesses could apply to assist them through a temporary downturn on providing a suitable business case. This would enable funds to be targeted at more deserving areas. It is often the case that individual industries are affected by a downturn, but not necessarily all industries of a certain size, which is how relief is granted at the moment. This assistance could also be targeted at start-up businesses until they become established.

Business rates – which raise about 2.57 billion for the Scottish Government – fund local authority services, but the business community has often called into question whether it should meet such a burden or whether some other form of taxation should be put in place. As is often the case with taxation, those who benefit do so at the expense of others.

Briefly, the revaluation in 2010 will reflect property values in and around April 2008 and, under the current legislation, the assessors are required to value commercial properties on the evidence at that time and cannot reflect the subsequent downturn due to the banking crisis. At previous revaluations, any upturn in value two years prior to the revaluation date was also ignored.

The Scottish Government has said 60 per cent of businesses will be better off, however this hides the fact that some enormous increases have occurred.

The recent draft rateable values, which will take effect from 1 April, have seen considerable fluctuation throughout the country, with Aberdeen seeing some of the largest rises. In particular, Jury's Inn in Guild Street, Aberdeen, has increased in rateable value from 400,000 to 700,000, giving a rates increase from 194,000 to 289,000, and Tesco at Bridge of Don has increased from 1.54 million to 2.43m – a rates increase from 746,900 to 1m.

The Balmoral Hotel in Edinburgh has increased from 1.23m to 1.76m, and Gleneagles Hotel is up from 2.125m to 2.5m.

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Conversely, Royal Bank of Scotland head office at Gogarbank has seen a large decrease in value, from a rateable value of 6.55m to one of 6.2m.

Strangely, at a time when transitional relief would have probably been at its most helpful for those seeing significant increases, it will not be applied at this revaluation. However, an alternative scheme will be available in England.

The Scottish Government has said the reduction in uniform business rate will itself cushion the increases. But this is the same uniform business rate that applied in England, and they do have a transitional relief scheme. Scottish businesses will suffer this difference.

At present, a property's rateable value is the only part of the rates bill that ratepayers can influence and attempt to change. Appeals can be lodged within six months of the valuation notice being issued, but business does need a more coherent approach and a strategy with notification of the uniform business rate and any forms of relief being publicised at an early date to enable businesses to budget accordingly.

The rates system is set by current legislation, which assessors are obliged to comply with, but it is the spending requirements of local authorities and the Scottish Government that set the basis for the actual liability.

• Tim Bunker is a rating partner at property consultancy firm Ryden.