How do Business Rate Changes Affect Facilities Management Companies?

As you would have heard by now, business rates in the UK are changing this year. Starting next month, companies across the country could see either a great reduction in or a harsh spike in their rates. Either way, these changes are going to have a massive effect on businesses everywhere.

So what exactly is happening to the system at large, outside of FM?

All firms in the UK pay tax on their properties. Be it in shops, offices, factories or warehouses, any business-related facility incurs a business charge. These rates are in proportion with the value of the property, as estimated by the government’s surveyors.

This is the first time in seven years since the rates were revalued and, for most, it’s not looking good. Property prices rise all the time, and that’s no different for commercial properties. Many companies are even expected to see rates increase by a massive 100%.

A significant number of small businesses across the UK are planning on reducing investment and staff costs in preparation for the increase. A difficult time for companies across the country, a study has found that a worrying 19% of FSB members believe they will “ultimately close down or sell their business” as a result of the business rate increase.

Worst hit areas

With the rates based on the value of the property, those in the more desirable areas of the UK are readying themselves for a considerable blow. With London and its surrounding areas at the top of the ‘Revaluation’ hitlist, average increases are over 50%, with some even doubling or tripling in their rates.

Certain high-end fashion shops across London are predicted to see rateable values increase by a whopping 415%. Although, as big-name brands and designers, it’s unlikely they will suffer fatally from these tax hikes.

It’s the small to medium businesses around the country that are likely to take these changes the hardest. The famous Mary ‘Queen of Shops’ Portas has predicted in her article in the Telegraph that “at least a third” of small businesses in the UK will “die off” because of these changes.

Impact

At least it is true that some of the smaller companies have a fighting chance. Where previously it was only firms with business rates under £6,000 that received rate relief, now, the number has raised to £15,000.

This means 600,000 small businesses won’t have to pay any business rates tax at all, and a further 250,000 will have their rates cut. Indeed, there are some companies set to benefit from the change.

But not all.

The really unfair thing about the new business rates is that they really have nothing to do with the business at all, only the property. Former Business Minister, Anna Soubry, highlighted this in the Guardian. Pointing out the injustice, she stated “you could be running a multimillion pound business from relatively small building but pay the same as a shop of the same size employing three people with hugely smaller turnover.”

So what does all of this mean for facilities management?

Every company is up for this revaluation, and it’s possible those working in Facilities Management may suffer as a result. With the additional squeeze of higher living & minimum wage levels plus the introduction of workplace pensions, many FM leaders may be faced with some really tough choices on both staffing and service level provision in the coming months.

Speaking in FMJ, Jeremy Waud, chairman of the Incentive FM Group, has expressed concern that the rates increase could prompt companies to move out of the capital or pressurise businesses into reducing the size of their estates. Mr Waud said that FM departments and service providers “come under pressure to work their magic and reduce operational costs so that the total cost of occupation becomes more acceptable”.

His advice to FM was that he “suggest(s) that FMs and property managers adopt a four-point action plan. First, challenge the revaluation using the new ‘check, challenge, appeal’ (CCA) process (England only – Scotland may have a different approach). Second, consider your estates strategy – is it feasible to move? Third, rebalance the total occupier cost, through more sales, for example, or lower cost of occupation. Finally, work with an FM consultant to devise an alternative lower cost service delivery model.”

Property management firm Knight Frank are expecting FM managers to approach them in significant numbers looking to take advantage of empty rate relief by more careful space management. Another leading firm in this field, EBR Solutions, has launched an online marketing campaign extolling the benefits of their system of empty rate relief management prior to the new valuations being applied.

The advice most given by experts in the FM sector is to challenge the valuation you’re given if it is particularly disadvantageous to your company. Be sure to do one thing though. Make sure your ratings valuation company representative actually visits your premises and ask him or her to provide real proof that your rates are too high. Otherwise, an eager rep keen to make a sale could force you into a trap where you end up paying even higher rates as the tribunal may judge that the initial valuation was too low.

If you have any questions about Facilities Management or the services that we offer, please do contact one of our team on 0207 118 48 48 or info@maxwellstephens.com.

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