(Image: Damian Shields/Derek McArthur)
It may not be the most exciting topic in the world, but few taxes have a bigger impact on Scotland's economy than business rates.
Business rates are forecast to raise more than £3 billion for local services this year, yet concerns over the size of bills, the way they are calculated and the complexity of the system have fuelled calls for reform across the business community.
From frustrations in the hospitality trade over the method used to work out bills to anxiety among sole traders over the red tape that plagues the system, rating policy in Scotland is ripe for reform.
That’s why The Herald is calling for major reform to the system.
Here are the six changes we are looking for and why.
Adjust threshold for small business bonus scheme to ensure small firms remain within its scope
The small business bonus scheme has in the past been described as a “lifeline” for small firms and sole traders. But because the qualifying thresholds have not increased in line with inflation, more and more small businesses are falling into the scope of the rates system.
Colin Borland, Scotland director of the Federation of Small Businesses, explains: “As a result of the last revaluation, a lot of people saw their rateable values increase to the extent of falling out of 100% relief, or they are falling out of the scheme altogether. So, I think The Herald is absolutely right to back something we have been saying for years, to restore the levels to pre-2023 levels. That would mean the small business bonus continues to protect exactly the sort of small businesses it was designed for.”
Our letter to First Minister John Swinney (Image: Newsquest)
Create a national business rates assessor to avoid regional disparities within Scotland
The Scottish business community has long called for a more streamlined approach when it comes to assessing non-domestic rates.
“One thing the Scottish Government can do is assess the number of assessors we have, because across Scotland there are 14 different assessors,” Mr Borland said.
“If you folded the 14 assessors into a single body, and for the sake of argument put it under the control of Revenue Scotland, what you would get is [a] more streamlined [system], but it would also be more accountable as well, because the issue we have at the moment is different bits of government not talking to each other.”
Fiona Campbell, chief executive of the Association of Self-Caterers, said: “A national assessor would end the lottery of where in Scotland you happen to operate, and protection against sudden, unaffordable jumps would let people plan ahead instead of wondering whether they can carry on. Visitors don't just stay in a self-catering property; they help fill the local pub and provide footfall for local shops and restaurants. All of that depends on the people hosting them staying in business."
There are huge concerns about the way business rates are calculated in Scotland (Image: Colin Mearns)
A fairer deal for tourism accommodation and hospitality
The method used to calculate rates for the hospitality and tourism sectors has long been a bone of contention. Unlike other sectors, Scottish Assessors have historically taken turnover into account when assessing many licensed hospitality businesses. According to the industry, this routinely leads to rates bills that bear no reflection to the underlying profitability of the business.
Colin Wilkinson, managing director of the Scottish Licensed Trade Association, said: “The licensed trade sector disproportionately pays more in commercial rates than any other sector and, by effectively levying a local rates “tax” at between 6% to 10% of turnover on pubs and other licensed premises, business rates for the hospitality sector is akin to a corporation tax supplement, applied on income.
“No other business sector would accept, or be expected to withstand, such a crude and inequitable charge. Turnover alone is no indicator of value, or ability to pay, and scant regard is given to costs being borne by the sector – utilities up 86% since 2019, payroll up 58% since 2019, and other overheads, which have far outstripped inflation and trends in levels of turnover.”
Take action to prevent individual businesses being faced with sudden huge and unaffordable increases in valuation cycles in future, learning from the experience of the most recent valuation round
Business owners regularly say that a major flaw in the current system is that they can suddenly be presented with huge increases in the rateable value of their property, seemingly without warning. This was evident after the most recent revaluation, when some businesses saw their rateable values rise by several hundred percent.
Stephen Montgomery, director of the Scottish Hospitality Group, said: “Some establishments have experienced increases of several hundred per cent, including individual revaluations increasing by between 500% and 800%.
“These are not simply minor accounting adjustments; they can fundamentally alter whether a business remains viable.”
The Herald is calling on the Scottish Government to make changes to protect businesses from unexpected and unrealistic hikes in rates. Without this, firms lack the confidence to invest for the future and employ people with confidence.
Push for measures to ensure that major online players pay their fair share for the benefit of the business community as a whole
Many businesses in Scotland offer successful online operations, supplementing their ‘bricks and mortar’ presence. But small businesses have expressed concern over the “tax imbalance” in favour of “multinational online operators”.
“We absolutely support the principle that large online businesses should make a fair contribution to the communities and economies in which they operate,” said Guy Hinks, Scotland chair of the Federation of Small Businesses.
“However, the answer cannot be introducing another complicated tax which could inadvertently catch small Scottish businesses selling online.
“There are also a number of high street traders whose online sales open up markets across the world and keep their physical presence viable. We don’t want to lose that.
“The UK government should look at the tax imbalance business rates cause between firms with a significant physical property footprint and multinational online operators whose business models require comparatively little physical retail space.
“We would want to see the proceeds of any reforms used transparently to reduce the burden on bricks-and-mortar small businesses, particularly independent retailers and high street businesses.”
Return the business premises renovation allowance relief to help tackle the issue of vacant sites
The sight of vacant and boarded-up shops in towns and cities around Scotland has long been a source of concern. From the rise of online shopping and growth of out-of-town retail destinations to the fall-out from the coronavirus pandemic, a raft of structural changes have changed the face of the Scottish high street over the last two decades. But when it comes to tackling the blight of vacant units, there is one thing the UK Government could do to encourage buildings to be brought back into use.
Stuart Patrick, chief executive of Glasgow Chamber of Commerce, said: “The Scottish Government should make a clear case for the return of the Business Premises Renovation Allowance (BPRA). Empty buildings are one of the most visible problems in Glasgow city centre, and BPRA was one of the few tools that gave investors a compelling financial incentive to bring long-vacant premises back into use. Until it ended, it offered 100% tax relief on the cost of renovating or converting vacant business premises in disadvantaged areas. Glasgow has seen what it can achieve: St Andrew House on West Nile Street was the first office-to-hotel conversion in Scotland to use it.
“A renewed BPRA should specifically target empty heritage buildings in tightly defined town and city centre areas, supporting their conversion to both business and residential uses. These buildings need a viable future, and targeted tax relief could help turn stalled proposals into investment, homes and occupied premises.
“This should form part of the wider debate on city devolution currently being reviewed by the UK Government. Glasgow City Region needs the flexibility to shape tax policy around its own challenges and opportunities. Bringing empty buildings back into productive use is a clear example of where greater local control could help deliver economic growth.”