The UK government has issued a consultation looking at fundamental review of business rates by HM Treasury, the terms of reference for which were published at the Spring Budget. The consultation acts as a call for evidence to seek views on:
- How the business rates system currently works;
- Issues with the current system which need to be addressed;
- Ideas for change/improvement;
- A number of alternative taxes.
Alongside the objective of reducing the overall burden on businesses and improving the current business rates system, the government will consider how any changes align with UK’s legally binding target to reach Net Zero carbon emissions by 2050.
In the context of de-carbonisation and the drive to Net Zero, one of the areas under review in the consultation is ‘Plant and Machinery’ or ‘P&M’. Currently some P&M equipment is included in business rates, broadly encompassing those items which are in order for it be used in line with it designated purpose, such as the heating and lighting systems, etc (often referred to as ‘Service P&M’). As these items provide value to the occupiers of the property, they are included in the property’s valuation, and thus business rates. P&M items excluded from business rates broadly cover those which are occupier specific, and that would not be of value if a different occupier were to move into the building. This is referred to as a ‘tools of the trade’ exemption.
The way P&M/property improvements are treated in business rates currently has raised concerns from stakeholders as it is considered to provide a barrier to investment and growth. Investments in energy efficiency add to the asset value, which in turn increases the cost of business rates to the company. Importantly, alongside this, stakeholder views have also expressed that an opportunity exists for de-carbonisation to be supported through changes to the business rates system through measures such as:
- Reliefs or exemptions for certain P&M used in energy generation or to improve energy efficiency;
- Enforcing a higher rate burden on less energy efficient buildings/systems;
- Enforcing a higher rate burden on those buildings used for fossil fuel-based generation.
It is clear then that some of the decisions made as part of the business rates review have the potential to influence our de-carbonisation and Net Zero trajectory and this is an important part of the consultation. The consultation is seeking views and evidence around the concerns and opportunities raised by stakeholders, to ascertain how changes to the business rates systems could both facilitate business investment and growth, whilst also supporting the de-carbonisation of buildings. In particular the government is also seeking to understand the likely impact of any changes on de-carbonisation, compared to other measures, including other taxes, spending or regulatory changes.
It has been widely identified that energy efficiency has a key role to play in the transition to a Net Zero carbon position for the UK. Investing in energy efficiency measures is one of the most effective and least cost options for driving towards Net Zero and reducing demand will enable us to reach a point where supply of renewable energy can meet demand more quickly.
With the removal of the enhanced capital allowance, and other government subsidies such as the Feed in Tariff, the need to consider how changes to business rates can help encourage businesses to take measures to reduce energy and de-carbonise is necessary. Measures such as exempting energy efficiency improvements/technologies from business rates would help to reduce the return on investment to businesses from such projects. Whilst the government is keen to understand how potential incentives from changes to business rates may impact de-carbonisation compared to alternative measures, it is clear that due to the scale and speed at which change is needed, government policy will need to support de-carbonisation in more than one area.
The consultation is being run in two phases to provide adequate time for businesses and stakeholders to respond. Initial responses relating to the multiplier and reliefs sections are required by 18th September, and these will inform an interim report to be issued in Autumn 2020. The deadline for responses to all other sections of the consultation is 31st October, with the consultation review due to conclude in Spring 2021.
We are formulating our response to the consultation and would welcome any thoughts you may have on the proposed areas of improvement. To have your say, please email the compliance team at firstname.lastname@example.org or to discuss this further please call Joanne Merry on 01252 87 87 22.