Chancellor George Osborne has used his Budget 2016 speech to announce a major shakeup of business rates, which will mean 600,000 small businesses will pay no rates and 250,000 will have their rates cut from April 2017.
He said he was permanently raising the annual threshold for small business tax relief from £6,000 to a maximum of £15,000 and for the higher rate from £18,000 to £51,000.
From April next year, said Mr Osborne, 600,000 small businesses will pay no business rates at all. That’s an annual saving of almost £6,000 and a total saving for small businesses in the UK of around £3.6 billion.
The Chancellor also announced that from 2020, business rates increases will be based on the consumer price index (CPI) rather than the retail price index (RPI), which should lead to lower increases in rates bills.
The move has been welcomed by business leaders.
Federation of Small Businesses (FSB) policy director Mike Cherry said: “In a Budget constrained by both the need to reduce the deficit and the economic outlook, the Chancellor has listened to our calls for the tax system to be made simpler for small businesses and the self-employed and taken important action on business rates.
“In particular, FSB members have campaigned hard to make Small Business Rates Relief permanent, and expand it – and the Chancellor has heeded our calls, taking many small firms out of the system altogether. The combined measures announced on business rates – the single biggest tax cut in today’s Budget – will be viewed by our members as a welcome and important step on the road to fundamental reform. In addition, online retailers will benefit from steps to secure a level playing field for smaller online businesses on VAT.”
The British Retail Consortium said that the Budget recognised that the business rates system is no longer fit for purpose and it welcomed the Chancellor’s rates reform, but it warned that there was no immediate relief in sight, as the package of measures will not benefit retailers and the local communities they serve until 2020.
Said BRC chief executive Helen Dickinson: “Taking small businesses out of the business rates system, switching the annual indexation to CPI and moving to more frequent revaluations, are all welcome moves towards fundamentally reforming the business rates system. Today’s Budget was a recognition that the system is no longer sustainable and is in desperate need of fundamental reform. Retailers will have noticed that any of the intended support will not be felt for another year and more, however.
“Only fundamental reform of the system will realise the benefits of continued high availability of local jobs especially in deprived areas, improved productivity, rising exports, the delivery of training and apprenticeships and, critically, the reinvention of our high streets and town centres.”