Robert Watson director of Osborne King's professional service division on how the rates system can be improved to benefit small business
Grabbing the headlines towards the of last year was the levy on occupiers of retail properties with a rateable value of £500,000 or more to fund an extension of the small business rate relief scheme.
This levy will be 15%, reduced from the original proposal of 20%, and will apply for three years from this April.
It will fund a 20% discount on rates payable on business premises with a rateable value between £5,001 and £10,000.
The so-called 'Tesco tax' has been debated widely in the press and given that it is to be introduced anyway, I don't intend to add to that debate in relation to the merits or de-merits of the levy.
My only contribution is to say that this arbitrary re-distribution of rate liability could have been avoided had a general re-valuation of all non-domestic properties been brought forward from 2015.
The re-valuation planned for 2010 was postponed due to valuation uncertainties between 2008 and 2010. It will not now be introduced until 2015.
However, given that a lot of the groundwork was carried out for the 2010 exercise, in my opinion it could have been brought forward to April 2013 had the finance minister announced it when he released the consultation paper on rating amendments in June 2011.
This would have re-distributed the rates burden in a recognised, transparent and acceptable way.
Ironically, it is likely that there would have been a shift in the rates burden to large supermarkets from small retailers and to out of town retailers from town centres - outcomes the levy is trying to achieve.
Whilst the levy and small business rate relief are the most far-reaching changes, two other amendments were announced that are imaginative and have the potential to reverse the degenerating effect of an increasing number of vacant shop units, particularly within our town centres.
The first of these measures relates to the use of shop fronts or shop windows in empty retail premises for non-commercial, non-political, community or artistic purposes.
Ratepayers will continue to benefit from 50% empty property rates relief (or exclusion, if applicable).
The depth of the window display must not exceed 1.5m and the area of the window display must not exceed 5% of the floor area of that part of the building fronted by the window display.
The provision offers great potential to charities and community groups, particularly those associated with the arts, to promote their organisations or particular events.
A well-dressed window will add interest to a high street or shopping centre compared to the gap-tooth effect of vacant or shuttered shop windows. I would expect most landlords to welcome approaches and so there ought to be windows of opportunity aplenty.
The second measure, for which the Executive ought to be commended, is rates relief for long-term empty retail premises.
Any retail premises that have been vacant for 12 months or more will be entitled to 50% relief for the first 12 months of trading. This measure will apply to both town centre and out of town retail properties. Effectively, this will allow 50% empty property relief to continue for up to a year after a shop is occupied. The intention is that this will encourage a greater take up of empty retail premises.
Whilst this initiative is to be welcomed, it could and should have gone further. The measure will only be available for uptake in the rating year commencing April 2012.
I am quite sure that there will still be too many vacant shop units beyond April 2013 so why not extend the opportunity for say three years?
Perhaps if it proves successful, the measure will be extended.
Furthermore, the test should be based, in my opinion, on whether or not a landlord is entitled to receive any rent for the retail premises in the preceding 12 months, not simply that the premises were vacant.
Many landlords allow qualifying charities, who pay no rates or retailers who cannot afford to pay a rent to occupy shops for limited periods rent-free.
Landlords benefit by relieving themselves of the vacant rates burden for a period whilst charities and small retailers benefit from having access to premises they could not otherwise afford.
The high street or shopping centre benefits from a smaller number of vacant units blighting the environment.
However, the new provision as drafted would prevent a landlord in these circumstances from offering his unit to a retailer with the benefit of 50% rates relief for 12 months.
This could act as a disincentive to landlords to allow occupiers into their premises rent-free in the hope that preserving its vacant status gives them an advantage in attracting a rent-paying tenant after April 2012.
Developers of unfinished retail units should note that in order to qualify, the premises must be in the Rating List and vacant for at least 12 months.
I believe that there will be few objections to the latter two amendments, which can only improve the retail environment. Providing relief to small businesses is also to be welcomed albeit arguably the way it has been implemented is not sufficiently targeted and its effectiveness is likely to be limited.
Let's hope that warnings from the likes of Tesco and Sainsbury's that this levy will result in job losses or the loss of future investment in Northern Ireland will not be borne out.