Through the new 2023 rating period, many businesses are anticipating a reduction in business rates. Given the tumultuous few years it has been for many key industries within our economy, significant changes to the business rates system could prove to be invaluable.
But depending on the implementation and introduction of any future changes to business rates liability, some businesses could lose out on the relief they’ve been awarded.
We’re talking about transitional relief; a system designed to act as a buffer for unexpected business rate increases could be withholding rebates to the industries that need them most.
But what is transitional relief? How does it work? And what can you do to make sure you’re not left cursing a scheme that should be working in your favour?
As business rate values are loosely based on open market rent, the rateable value of your property can fluctuate over time, due to revaluations in your area. Historically such revaluations occur on a five-year cycle (extending to six years this cycle, due to the effects of COVID-19), but from April 2023, will occur more regularly on a three-year cycle instead.
Transitional relief was introduced to ensure that businesses whose rateable value had increased in the new rating cycle wouldn’t be fronted with a large bill and ordered to pay up immediately. Instead, businesses would be able to increase their business rate payments incrementally, in line with their bill, so price hikes didn’t disrupt cash flow.
Nobody likes to see their bills go up, (and in the case of business rates, it’s always worth exploring your options for challenging an increase when it happens!) but transitional relief can be a lifeline to continue operating while getting up to speed with your payments.
But what about when things go the other way? For many on the high street, open market rent will have fallen in value when revised in April 2023. For some this fall could be significant, and during a particularly difficult time for hospitality and retail, such a fall could prove pivotal in keeping the business doors open.
But if transitional relief plays by the same rules in 2023 as it did in 2017, then it’s estimated that the hotel sector alone could have £250m in relief locked away, drip fed to the industry at a time when the full amount is needed most.
The reason that transitional relief works both ways is so it can continue to be a self-funded scheme. This keeps those owing money to the scheme paying for those receiving it and vice versa. For the scheme to work there has to be balance.
But a post-pandemic economy amid a global economic crisis demands more urgency to be kept afloat. The hospitality, retail, and leisure sector cannot currently afford to pay more in business rates than required of them after a new evaluation. Especially when open market rent for the high street is set to fall by some 30% in 2023.
As it stands, there has been no announcement to release the withheld transitional relief funds to the retail leisure and hospitality sector, but its plight has been vocal enough to reach government debate. National think tanks and the lobbying efforts of multiple SME organisations have helped to bring the issue of transitional relief to light. As PM elections near their end, candidates have been increasingly vocal about business rates reform. But currently, we can only hope for news on transitional relief.
It’s an uncertain time for many businesses on the high street, and further uncertainty surrounding the future of business rates liability doesn’t help. To avoid the possibility of unnecessary business closure it might be worth putting a business rates specialist in your corner. We’ll ensure your business rates liability is kept to a minimum, and any payments you're entitled to are paid out as promptly as possible.
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