How the 2018 Changes in Business Rates Will Affect Brighton Businesses

Another round of challenges greets small business owners in Brighton as the new year rolls on, from the economic pressures due to the aftermath of Brexit, to the upcoming implementation of the General Data Protection Regulation.

These challenges become even more pronounced, especially in light of the Autumn Budget. Although the latest budget has been relatively well received, particularly the business rate shift to the Consumer Price Index (CPI) which has acted as a salvation for some businesses. It has also ushered in a potentially huge cost increase for small companies.

This indexation change will be implemented in April 2018—two years ahead of schedule. Despite a projected 0.9% ratepayer savings, it will still affect small organisations’ working capital, effectively decreasing their ability to expand operations.

On top of that, Brighton and Hove entrepreneurs will also need to prepare for an increase in council tax by 4.99%.

It’s understandable that in the wake of these announcements, there is a general air of pessimism for small business in 2018.

In fact, the latest Small Business Index by the Federation of Small Businesses (FSB) showed that 73% of owners foresee a rise in operating costs, with a correlating 41% predicting their profits will fall.

Current State of Small Businesses In Brighton

The survival of the country’s economy relies heavily on small businesses, especially since this sector makes up 99.3% of the country’s private businesses.

Brighton, in particular, has the highest proportion of creative SMEs in the UK, outranking London, Oxford, and Cambridge.

Despite recent economic downturns, Brighton has maintained a booming local economy, built upon the resilience of it’s small business sector.

The Brighton and Hove city centre is home to hundreds of independent retailers and businesses, which include:

  • The Lanes, Brighton’s historic quarter, famous for its narrow streets and alleyways lined with jewellery and antique shops.
  • North Laine, both a residential and commercial area where over 400 kitsch and funky boutiques thrive.
  • Kemptown, well-known for its LGBT-oriented shops, as well as cafes and restaurants dotting St. James’ Street.
  • Lots of chain stores located on Western Road and Churchill Square.
  • Other major high streets found on West Street, Queens Road, North and East Streets, Ship Street, and Duke Street.

Brighton, in total, has 370 SMEs per 100,000 of the population. These shops are, however, the most likely to be hit by the government’s new business rates.

The Effect of New Business Rates on Brighton Businesses

Unfortunately, these new rates, coupled with existing economic uncertainties, are putting additional strain on Brighton’s small business community. With many fearing that the additional pressures could force some businesses under.

Regardless of your industry, it is best that you work closely with your accountant so you can prepare for the following threats and opportunities:

Lower business rate is not low enough for retail sector

By shifting business rates to the lower measure of CPI, at 3%, instead of the RPI at 3.9%, British companies are predicted to save £2.3 billion in the next five years. However, it would still drive revenue receipts up by £884 million, with £226 million coming from the retail sector.

While monolithic online retailers like Amazon will be largely unaffected by this, high street retailers - already suffering from rising property prices - are especially vulnerable. In fact, during the past seven years under the business rates, almost 16,000 retailers have been forced to closed shop.

The predicted effect this will have on the small business sector has prompted retail and property experts to call for the government to review business taxes in its entirety, and even go as far as freezing business rates altogether.

Independent stores on high streets will struggle

The revaluation of the business rates - where the rateable value of each business property is adjusted to reflect changes in the property market - will have a significant impact on independent shops located in high traffic areas.

As many of the shops and boutiques in Brighton are situated in prime locations, this could have a dramatic effect on the landscape of Brighton’s streets.

Currently, rates are set at roughly half of the rent, and in cities like Brighton, where property prices have risen over 40% in the last decade, smaller businesses in prosperous locations could be crippled by the adjustments. Especially considering that under the new Autumn Budget, the revaluations will happen once every 3, instead of 5, years. Stepping up the pace in which businesses will have to pay increasing rate amounts, in a market where face-to-face consumer spending has slumped to its lowest levels in years.

However, if you own a string of businesses in multiple cities, you may fare slightly better off. As each branch will be subject to different business rates dependent on where they are located. One store’s business rate might even offset the other.

Downsizing, closing or selling small companies 

The FSB’s latest quarterly small business index showed that one in seven small business owners are planning to downsize, close, or sell their companies this year. Moreover, 31% of companies predict their performance will fall in the next three months, with only 27% remaining optimistic.

These are all a product of multiple factors, which include inflation, weak economic growth, and a decrease in consumer demand.

There could, however, be a silver lining. Half of UK SME owners believe that their businesses will increase in revenue thanks to an increased accessibility to additional funding. With many looking to increasingly invest in their marketing efforts, and others seeking to launch new products/services or enter new markets.

A domino effect

Following the property revaluation, small organisations are expected to be pressed for capital, affecting growth and development.

If these tenants fail to meet their financial obligations, commercial landlords would also be affected—creating a domino effect.

Discount for small pubs 

If you are operating a pub in England with a rateable value that does not exceed £100,000, you are still entitled to a £1,000 business rate relief from the government. This scheme will continue until March 2019.

Increase in small firms trading online

While, as we mentioned before, face-to-face consumer spending is at an all-time low, e-commerce spending is increasing.

SMEs who establish a digital storefront could save themselves by adding an increasingly utilised revenue stream. Building an e-commerce website is projected to increase sales by 1.9%, as opposed to 0.6% of those who stick solely to brick-and-mortar.

With 88% of UK SMEs are expected to start trading online in 2018, e-commerce appears to be the route forward.

Do What It Takes To Survive 

Although 2018 started with grim predictions and more financial distress, savvy business owners would find ways to swim in these turbulent waters.

Be wise with your financial management, sustain your productivity, and make clear gains by establishing an online presence.

If you’re worried about your capital taking a hit in lieu of the change in business rates, or for any questions regarding the sustainability of your finances in 2018, contact our specialised small business accountants. And let us help you set out a clear plan for the future.