Rates loophole brings businesses to their knees

Daniel and Joanna Campbell at the Leaf & Bean cafe, which has been hit hard by the rise. Picture: Ian Georgeson
Daniel and Joanna Campbell at the Leaf & Bean cafe, which has been hit hard by the rise. Picture: Ian Georgeson
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Hundreds of firms have been hit with punitive business rates hikes as a result of a loophole in the Scottish Government’s budget, Scotland on Sunday can reveal.

Fears that firms will be put out of business have been raised after Labour research revealed hundreds of small enterprises are affected, with almost 100 seeing their bills more than double.

The loophole exists despite Finance Secretary Derek Mackay’s efforts to cap business rates rises following an outcry over the sharp increases caused by last year’s revaluation. At least 650 small to medium-sized businesses have been hit by the rates increase leading to Labour calls for the loophole to be closed.

“This is a mess,” said Labour MSP for Edinburgh Southern, Daniel Johnson. “The SNP Government chose to act when the pressure from political parties and businesses became too strong. However, they introduced a transitional deal that effectively missed out hundreds of businesses. Those businesses planned their finances around Mackay’s big announcement – only to be told weeks later that they were still seeing their bills skyrocket.”

“I have spoken with business owners in my constituency who are really struggling – indeed one popular local café had to close its doors – they simply can’t afford these huge bills.

He added: “This gets to the heart of this budget’s basic competence. Derek Mackay must make a simple fix and close this loophole to protect these 650 small businesses across Scotland.”

Last year Mackay introduced a cap on business rates rises of 14.75 per cent following anger over the huge increases many businesses faced as a result of the revaluation of their rateable values. Business rates are calculated by multiplying a business’s rateable value 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 seen the rateable values of businesses increase so that they are no longer eligible for as much relief from the Small Business Scheme. For example, 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 analysis based on independent figures suggests 95 business properties were affected in this manner, suffering a business rates rise of 129 per cent. 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 rateable value 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.

Mackay’s spokesman accused Labour of “hypocrisy” saying the government had extended the Small Business Bonus Scheme.

Case study

Daniel and Joanna Campbell invested tens of thousands of pounds in their Leaf & Bean café, the small business they set up around four years ago. Their hard work was just beginning to pay off and they had achieved their first year’s profit. Then their rates went up from £5,227 to £7,997 – an increase of 53 per cent. “I am fuming and I find it absolutely shocking,” said Daniel Campbell. “When the rates bill came through, it felt like our guts had been ripped out. We are now back to square one.”

The café in Morningside, Edinburgh, which employs up to 10 staff, had its rateable value reassessed. The increase in value meant they were no longer eligible for 25 per cent relief from the Small Business Bonus Scheme.