The government announced during the 2020 Budget that it would conduct a full review of the business rates system after consistent calls from business owners over the negative impact and burden the tax has on sustaining growth.
Their interim report was released on tax day, followed by news of the closure of both TUI and John Lewis high street shops.
Harry Johnson, solicitor at Langleys Solicitors, said: “Following a significant delay in the discussions over reviewing the business rates tax, the government has finally provided its long-awaited update on its review. The review is being undertaken in the context of wider public policy concern, mainly the future of the high street. During lockdown restrictions we have seen multiple major high street names fall victim to dropping demand for physical retail, while we have also seen online retailers thrive. The government will need to balance out the advantage that online retailers are currently afforded if they want to preserve high streets, something that businesses believe the reform or even complete removal of businesses rates will achieve.
“Additionally, while the business rates holiday has helped parts of the retail and hospitality sectors cover costs, there are hopes that the government will bring about a further extension to the holiday (beyond the current expiry date of 30 June 2021) to allow for high street retailers to fully recover throughout the next year. However, there are also those who have highlighted that the exclusion of this support for other high street businesses may result in town shopping centres becoming significantly under populated.
“To combat this disparity, there has been a proposed introduction of an online sales tax, aimed at the sale of online goods, and another tax aimed at the delivery of consumer items. The latter suggestion would also provide additional environmental benefits as it could see a reduction in traffic. Though for these to even be considered as replacing the current businesses rates, they would have to not result in a deficit on tax revenue.”
Balancing economic growth and tax revenue
Johnson, added: “There have been consistent calls for a change to the system, as many believe that business rates have disproportionately increased in comparison with inflation and other taxes, and that the increased costs for businesses requiring a physical presence is putting them a critical disadvantage against purely online businesses.
“While business rates have been increasingly unpopular amongst business owners, they’ve always been valued by the government as a stable revenue for funding key local services. The government is in a tricky position of needing to promote business growth and recovery in order to stabilise the economy, while also providing sufficient finance for local councils and services that have been the backbone of the UK’s coronavirus response.”
“Any further postponement to business rates reform is likely to be met with backlash from a large percentage of business owners who are reluctant to believe the government is trying to make significant change to the system.”
Tax Day impact on the future of the high street