Q&A: What you need to know about business rates

AS business owners react to controversial business rate shake ups, here’s what you need to know about the rates and what the changes mean for Scottish businesses.

What are business rates?

An annual tax on commercial properties. Unlike domestic homeowners, Scotland’s businesses don’t pay council tax. Instead, shops, offices, pubs, hotels, warehouses, factories and even schools and health centres pay business rates.

How are the rates calculated?

The amount paid is based on a “rateable value”. This valuation of a property is broadly based on an analysis of what annual rental values would be.

What has changed?

The Scottish Assessors Association (SAA) sets the rateable value and recently carried out a revaluation of properties. It is supposed to do this every five years but it has not happened since 2010 after the Scottish Government decided to delay it.

The newly-assessed rateable values will be introduced from April 1.

Why has it caused such a furore?

Some will see their rates reduced but many businesses are facing huge hikes in their rates bill, with some claiming they will now have to pay four times as much.

The new rates have been calculated using rental values from 2015, which many see as unfair as the Scottish economy has slowed down sharply since then because of the sharp fall in oil prices, particularly of course in the north-east.

Who has lost out?

Pub and restaurants are facing very large rises as hospitality sector rates are now also based on turnover, as well as the rental value of their premises, Publicans and hoteliers are angry because high turnover is not the same as high profit. A business with lots of costs like staff and supplies can take in a lot of money but not actually make much profit.

Is it just a case of well-off business owners not wanting to pay more even though they can afford it?

In a few cases, perhaps yes. But the hotel and hospitality sectors – where many employers were already struggling – have a serious gripe in that the new rateable values are nearly two years out of date and are taken from a time when market conditions were considerably better. There are legitmate concerns that some businesses simply won’t be able to afford the extra bills and will go under.

What do businesses want?

Several business owners have called for a boycott but it’s unclear if that will actually happen. And for those that can afford to pay, it would be foolish to risk sanctions and the viability of their business by joining it.

A review into business rates is being carried out by former RBS chairman Ken Barclay and the results will be published later in the year, so many are urging the government to the freeze rates rise until the review is finished.

So how come the rate for the Scottish Parliament building dropped so dramatically?

The Scottish Assessors Association (SAA) holds the official answer to this, but experts say it is likely to be because industrial and office rents in Edinburgh were lower than usual when the revaluation figures were being calcuated due to the general economic downturn and surplus office space caused by firms downsizing of closing down. In addition, many offices in the capital have been converted to residential use since the credit crunch and the recession which followd it. So there is less rental evidence for assessors to base new values on.

Is the Scottish Government to blame for this?

It depends on who you listen to. The rates are set independently by the SAA but the Scottish Government still has the power to ignore the recommendations or devise an alternative plan instead of enforcing the new rates in around five weeks’ time. And that’s why pressure is building on the SNP to re-think.