News & Insight

One in five small businesses could close thanks to rates hike

Max White

New research spells out how devastating rates increase could be for UK businesses

A new report from the Federation of Small Businesses (FSB) gives first indication of how rising business rates could affect UK small businesses.

A staggering one in five small companies could face closure when their rates increase in April this year. Business owners quote scaling back staff costs and a freeze on investment as ways they plan to survive the increases. But for a fifth of businesses, it might not be enough.

What the FSB found

The research found that 36% of small firms expect their rates to increase from 1 April. Of those, 44% say they expect their rates to increase by more than £1,000.

55% say they plan to reduce, postpone or cancel investment in their business. A further 19% of those firms say they will ultimately have to weigh up closing down or selling.

Understanding the rate increase

Business rates are essentially a council tax for businesses. They are typically a small firm’s biggest overhead after rent and staff costs.

The amount a business is required to cough up is determined by the rental value of the space the business occupies and what it is used for. The industry that the business is in and the type of equipment used on the premises are both contributing factors to a larger business rates bill.

The rates are usually revalued every five years, but the rate change proposed in 2015 was considered too radical and was postponed. What that meant though, was that the changes effective from 1 April this year are even steeper for businesses.

What the Government says

The Government claims that 920,000 businesses will see a reduction in cost, compared with 510,000 businesses whose rates will go up. Rates for 420,000 businesses are expected to remain the same.

Theresa May’s government says it has established a £3.6 billion transitional fund to help businesses facing big increases.

Many will be watching next week’s Budget for full detail of how the government plans to help small businesses survive the hike.

What Christian says

To find out what the XLN Founder and CEO Christian Nellemann makes of the business rates ‘crisis’, read his opinion piece here.

Is your business going to be affected?

If the business rates increase impacts you and your small business, we want to know. Complete our quick survey here.