Jim Old had to watch every penny when he bought a rundown building on Tyneside last summer to turn into a business centre. He was delighted, then, to find that his small company qualified for a 50% discount on business rates — and even more so when the government announced a temporary 100% business rates holiday from last October, which saves him almost £2,500 a year.
Old and his two partners opened the doors of A One business centre, in Blaydon, in January and have just secured their first tenant. “We were looking for all the help we could get,” said the 50-year-old. “Getting business rate relief was a big help to us to get started and now that it has been extended, it is an even bigger help.”
As well as assisting Old’s cashflow, the small business rate relief has helped him promote the office space as tenants also benefit from the temporary suspension of rate payments.
Yet in spite of the obvious advantages, an estimated 88,000 firms in England fail to claim the relief, according to official figures, each missing out on up to £2,556 a year. About £54m a year is going unclaimed at the Treasury, which says only 84% of small businesses applied for business rate relief in the 2009-10 tax year.
“Business rates represent the third-largest overhead for a small firm, so those millions could be a lifeline to many struggling businesses,” said Andrew Cave of the Federation of Small Businesses.
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Business rates are charged on commercial premises such as shops, offices and factories, and collected by councils on behalf of central government. The annual bill is calculated as a percentage — currently about 40% — of a property’s rateable value.
Small businesses are normally eligible for a 50% discount if their premises have a rateable value of less than £6,000, with the discount tapering for values up to £12,000.
Under the business rates holiday, however, which has just been extended to September 30, 2012, there is 100% relief for premises with a rateable value of less than £6,000, again tapering to the £12,000 cap.
All firms that already receive small business rate relief will get the 100% discount automatically. For those that have not applied, the holiday means they will miss out twice over.
Lobby groups such as the Federation of Small Businesses and the Forum of Private Business want the relief to be applied automatically so that small firms, which are often swamped by red tape, do not lose out.
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“Far too few commercial property owners are claiming small business rate relief, which can give a much-needed boost to their cashflow,” said Phil McCabe of the Forum of Private Business. “It is partly down to a lack of awareness about how to claim the relief. We would like to see full relief apply automatically to eligible properties, as it does in Wales.”
McCabe said that most businesses not claiming the relief failed to do so because they were unaware of it or because they feared having to deal with yet more red tape.
The problem was made worse by inaccurate information from some local authorities about how and when to claim rates relief. The wording on some council websites, for example, implied that businesses needed to apply for the relief every year, which is no longer the case.
Cave added: “During these tough times, local authorities should redouble their efforts to extend as much help as possible to the small-business community.”
The good news for small-business owners is that if they are not yet claiming business rate relief, they can apply and backdate their claim to April 1, 2010, and so still benefit from the full period of the 100% discount.
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The scheme is aimed mainly at small firms with one property. Those with several properties will be eligible for relief on top of that for the main premises only if the rateable value for each of the others is less than £2,600. If that is the case, the rateable values of all the properties are combined and the relief applied to the main one.
Town halls slash red tape
Applying for small business rate relief is straightforward — just fill in a local council form, which can usually be downloaded from the website. Relief will then be applied immediately.
Some councils have tried to make the process simpler. Maurice Heaster, a councillor in Wandsworth, south London, said: “It’s vital that small firms receive every penny of their relief entitlement. Cutting red tape is key. Our application process has been reduced to a single side of A4 paper that takes about two minutes to complete.” He said 2,155 small businesses in Wandsworth claimed rate relief.
Bristol city council sends letters and application forms to businesses it believes may be entitled to rate relief but are not claiming it.