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The challenge of business rates

Business rates represent something of a challenge for businesses facing tough times. ICAEW’s John Boulton assesses the issues.

It seems like barely a week passes without news of an embattled retailer facing punishing trading conditions. One accounting item that characterises the sector, at least for those with high street stores, is a large fixed cost base in the form of rent and rates. Fixed costs might enable higher profitability in the good times, but they act as a ratcheting effect in reverse.

Businesses in distress may focus on cutting fixed costs, perhaps by renegotiating with landlords. But business rates remain inflexible.

The solution

It’s not difficult to find businesses disproportionately affected by business rates. The Baum in Rochdale is a popular community pub. Situated next to the museum that marks the site of the world’s first co-operative store, it was voted the best pub in Britain in 2012.

But the pub has been in the headlines recently for different reasons; in April 2017, its rateable value increased by 377%. The landlord’s plight was widely reported in the media, alongside that of other businesses in a similar position. The huge increase threatened their survival as a business. And there are many similar stories. While in some parts of the UK rates bills fell in 2017, rateable values increased in London (23.6%) and the South East (9.6%).

This is an extract from the Business & Management Magazine, Issue 268, October 2018.

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