Northern Ireland charity shops may have to lose rates-free status
Northern Ireland businesses and the 11 recently restructured local authorities have an opportunity to push for changes to reform the way in which non-domestic properties are levied for business rates. They have until January 25, 2016 to respond.
This consultation is not about a reduction or increase in the money to be raised. Stormont is considering what rule changes might be introduced if they were to raise at least the same revenue from rates as at present: £592m in 2014-15.
There are several important possible changes and other important distinctions that could affect the policies and budgeting of each of the local authorities as well as changing the impact on some businesses.
Northern Ireland already has an extensive list of categories of ratepayer that are partially or wholly exempt from business rates. Also, with the reform of local government, there are aspects of business rates where wider discretionary decisions might be passed to each local authority in the discharge of their newly defined remit.
This review of business rates is taking place in the shadow of a major change in the way businesses are affected by corporation tax. The reduction in corporation tax will affect Government revenue so that, if appropriate, there could be some set-off from tighter business rates.
Ten different concessions and exemptions reduce income from business rates by £221m each year. Each of them merits reconsideration.
The biggest concession, costing £87m each year, is the exemption from rates liability for charities. This needs to be reconsidered both in terms of the definition of an eligible charity and also in terms of some of the commercial relationships of charities with normal businesses. There is a strong case that charities which are trading commercially on the high street have an undue advantage compared to other rate-paying traders.
In England, the exemption from rates for charities is constrained to only 80% of liability for rates. Northern Ireland might make some changes. Charities might be wholly or partially levied for rates on premises used to engage in high street commercial activity and shops.
The 80% exemption might be applied to the non-commercial uses of property but with a change to give discretion to the local council on the final 20%. This would be part of a shift of several initiatives to the local authorities.
In addition, because vacant retail premises attract partial 50% rates charges while charity shops are rate-free, the retail market is distorted with an incentive to shop owners to lend/lease vacant shops to charities to avoid paying rates.
Charities which trade commercially might be levied for 50% of the commercial rates.
The second largest special rates reduction is the 70% concession on rates bills for qualifying manufacturing businesses. This costs £58m each year. Since these manufacturing businesses, like other commercial businesses, will benefit from the large reduction in corporation tax, there is a case to offset some of the cost of the tax concession by changing this concession which, in today's terms would be in breach of the State Aid rules.
The attractive sounding Small Businesses Rate Relief scheme must come under the microscope. It costs £18m every year but is not thought to generate any significant economic leverage on small business behaviour and is due to end in 2016. Perhaps it should lapse.
The responsibilities of the 11 new local councils bring a new dimension to their planning, spending and revenue raising. The reform of business rates, with discretionary local decision making, gives potential supplementary leverage to incentives for local economic development.
An ability to offer local discretion on regeneration schemes and in the attraction of investment is a new feature of the agenda for councils.
Councils should be emphasising their ambition to have flexibility and discretion on rates, as part of their development planning.
Councils and business organisations have good reason now to be active participants in this consultation.
Company report: Schrader Electronics Ltd
Schrader Electronics continues to expand its output and profitability. In the last five years turnover has grown by over 80%. In the most recent year the rate of expansion has accelerated.
The company has manufacturing facilities in Antrim and Carrickfergus. Until September 2010, it was a wholly owned subsidiary of Tomkins plc, registered in England.
In September 2010, the Tomkins businesses were purchased by a consortium and the parent company became Dutch-registered Pinafore Cooperatief U.A. Then in October 2014, ownership passed to Sensata Technologies, also in the Netherlands.
The principal activity of the company is the development and manufacture of remote tyre pressure monitoring systems for vehicles and other related electronic sensing technologies for the automotive industry.
The annual report identifies significant levels of expenditure on further research and development to broaden its marketable products and apply technology to reduce unit and operating costs. In 2014, research and development spending rose to £13.1m from £8.3m in 2013.
During 2015, business forecasts are that production volumes will grow by a further 2% over the 2014 levels linked to stronger growth of 3% in North America and 13% in Asia.
Operating and pre-tax profits have increased roughly in parallel with turnover. Pre-tax profits in 2014 rose to a new peak and were equivalent to 43% of the balance sheet value of shareholder funds. The value of shareholders’ funds rose sharply at the end of 2014 partly as the accumulation of added post-tax profits to reserves and the absence of any shareholder dividend in this year.
The implementation of EU legislation, requiring that a system of remote tyre pressure monitoring is fitted to all new vehicles, has meant a major increase in the market opportunities for Schrader.
The average number of employees in 2014, at 1,277, was 22% higher than a year earlier: more than double the numbers six years ago.