Resumption of business rates causing holiday blues
UPDATE: Extension to Business Rates Relief
In the budget update on Wednesday 3rd March, the government announced it will extend the business rates holiday to June 2021, with a 75% discount after that.
Major essential retailers, such as Asda, Tesco and Sainsbury's, have noted that they will repay any relief they received in the 2020/21 tax year. This is so far expected to recoup around £2bn of the £10bn cost of the relief.
The government expects around 750,000 English businesses to be eligible for the extended relief, across the retail, hospitality and leisure sectors.
Whilst this is an excellent step forward to the many eligible businesses, it remains to be seen whether the shift to online sales remains a permanent change. More businesses could still need to adapt to a digital-first world if consumer habits remain focused online.
Business rates, much like council tax for residential properties, are charged on a range of properties used for business.
Receiving a business rates bill, again, much like council tax, is undoubtedly one of life’s lesser excitements.
More than 50 commercial property groups previously asked for an extension to the business rates holiday, over fears for more job losses and companies facing bankruptcy.
Leading high street retailers across the UK also called for reforms to business tax rates. They wanted online retailers to pay their fair share, through a new online sales tax.
A boom for online retailers that's leaving high streets behind
A shift that was exacerbated by the pandemic has left many high streets at risk of further degradation in the coming years. Whilst the March 2021 budget update does go some way to address this, it is yet to be seen whether the shift to online retail is permanently here to stay.
The boom for online retailers is not helped by the fact that many online retailers selling to UK customers, don’t pay much tax in the UK.
Globally, Amazon, Facebook, Netflix, Google, Apple and Microsoft were accused of avoiding roughly $100bn (£72bn) in tax from 2009 to 2019.
Amazon has not yet released how much tax it paid in 2020, despite a 51% increase in its UK sales to a record £19.4bn.
Online sales tax for ‘excessive’ sales
With high streets closed for months, independent businesses and large retailers alike have felt the pull, while essential and online retailers boomed.
The government is reportedly considering an ‘excessive sales tax’, which would affect many of the UK’s favourite online giants.
Part of how such large, primarily online retailers can pay less than their bricks and mortar competitors, is they can base their businesses in tax havens or low-tax countries.
Paul Monaghan, chief executive of Fair Tax Mark, states: “a good proportion of [Amazon’s UK sales] will be booked in Luxembourg, where they engineered a near €1bn (£880m) loss last year”.
Tactics such as selling out of tax havens are not as easily implementable to high street stores. For example, it would raise some red flags if your local Tesco, an undeniably bricks and mortar store, began claiming it was based out of Luxembourg.
How can the UK’s largest businesses future-proof their business models?
The recent sale of Topshop to ASOS and Debenhams to Boohoo, have perhaps set the precedent for businesses to adapt to this online shift, or fall behind.
One example of adapting to shifting consumer habits is Pret A Manger. Built on the indisputable fact that Londoners would spend a premium for convenient and quick, fresh coffee and sandwiches, Pret lost almost all of its customers in one go.
Pret quickly reacted by coming to them. Pret’s new subscription service meant that Londoners and city-dwellers across the country barely had time to worry about what to do with all the spare change: Pret was back to provide a convenient (and delicious) service.
Perhaps like Pret, more large businesses should take heed of others’ mistakes. For example, Blockbuster’s administration when it refused to branch into digital viewing, or Primark’s continued lack of an online shop.
Inspiration could also be taken, not from online retailers allegedly underpaying workers, but by paying close attention to consumer habits and coming up with creative tax solutions that evens the playing field for important bricks and mortar businesses.
For now, however, reforming business rates could help to alleviate pressure on high street businesses that online retailers have so far avoided.
For all matters regarding commercial law, property law and litigation, get in touch with the team at Carlsons Solicitors.