Even when times are not as tough as they are now, most business people, when asked which tax they resent most, will list ‘employers national insurance’ and business rates (National Non Domestic Rates). I will deal with the former in another post, but business rates is seen as a tax on enterprise, because whether the organisation is making a profit or not, it must pay this “unfair” tax.

Business premises are given a rateable value. The amount of business rates payable is calculated using the rateable value and the multiplier, which is set by the government. Different multipliers are used for England, Wales, Scotland and Northern Ireland. The rateable value is based on the likely annual open market rent for the premises at a particular date. Currently the multiplier for England is set at 46.2%. There is small business rate relief available, but this does not benefit the vast number of businesses because the rateable (market) value has to be below £21,500 in London and £15,000 elsewhere. Even those that do qualify will receive a relatively small amount of relief, if they are lucky, a 25% reduction on the amount payable.

What many people do not realise, although the clue is in the ‘real’ name of the tax, National Non Domestic Rates, is that all this money is collected for central government coffers, by local authorities. The money collected is then pooled together by Central Government before being distributed to local authorities on a pro rata basis to help pay for the local services. In other words it is a Central, Government tax, which is subsequently used to subsidise local services, not based on the amount collected, but some arbitrary percentage of the total determined by Central Government.

The reason so many business people object to this tax is, that it is not a tax based on profit, number of employees or a service provided directly to the business. Instead, it is a tax that must be paid simply for the company operating out of what is termed ’business premises’. It is not even applied equally. For example, a business that has to invest in large capital equipment will need larger premises, therefore they must pay more tax. Similarly, a business that has larger premises to house a larger workforce will also be penalised at a higher rate. No cognisance is taken of whether the company is profitable, how many local people are employed or its indirect contribution to the village, town or city. The tax payable is determined only on a multiplier of the market rate for the premises, the size of the premises is normally determined by the amount that the entepreneurs’ have to invest in capital equipment or people.

Ask any employer and, after their workforce costs, the highest other overhead is the building and they are then ‘taxed’ on this cost at a rate of nearly 50%. Most will tell you that they receive very little in return, they even have to pay extra to have their rubbish collected! Worst still, even though business rates are supposed to include an element of investment in the emergency services, I can provide countless examples where crime against business is considered a very low priority for the police, even if it involves criminal damage, theft or fraud. Crime against business does not figure on the police radar because it is rarely of public concern. Instead it is treated almost as a victimless crime and therefore, most crime against business is not included in government statistics and as a consequence police targets, unless there is a crossover, for example an employer is threatened with a knife.

Many businesses are trapped when it comes to reducing or trimming the costs associated with their premises. For example, they may be on a fixed term lease, or they cannot downsize because the cost of relocation would exceed any financial gain from a reduced rent and business rate cost. Even if they no longer need such large premises because they have downsized, they are trapped into retaining the existing premises and paying a penal ’business’  or enterprise tax simply for surviving.

There is simply no logic in penalising businesses based on the size of their premises, having no regard as to the profitability of that company. For example, a reasonable sized business paying a rent of £35,000 per annum would be expected to pay a further £16,170 in business rates, this would be equivalent to corporation tax on profits of nearly £100,000. How can any government consider that a fair tax? Because the tax bears no relation to income or profitability, it can only be described as an enterprise tax and at a time like this, it is completely unacceptable.

If the government is serious about helping business, then the first step must be to look at any enterprise taxes, the priority has to be business rates, followed by the tax on employment, known as employers national insurance. A failure to look at these taxes at a time of recession will ensure that there are few businesses left to pull us out of the recession. The problem business people have, is virtually every government ‘business or enterprise department’ is staffed by civil servants, mostly career civil servants, who have never worked in, much less run a business. Worst still, even though the civil service brag that they want to encourage people from the private sector to join, the job descriptions and applicant profiles are written in such a way as to exclude those with private sector experience…another classic case of smoke and mirrors.