New model for non-domestic rates provides win-win system for business and government
Press ReleaseRural business organisation Scottish Land & Estates (SLE) is proposing a new model for non-domestic rates in Scotland, to provide certainty for small businesses and ensure the tax offers a net benefit to the Scottish exchequer.
The new system would remove complexity, reduce the administrative burden, and support growth, for both new and established businesses.
Following the business rates revaluation, some SLE members have been hit with tax bills over 600% higher than in the preceding year. In many cases, those wishing to expand or invest are facing disproportionate increases in tax.
The Scottish government has been forced to offer ‘transitional relief’ to many small firms, but business owners warn that a temporary fix is just delaying the inevitable – such exorbitant rises will lead to many businesses either cutting jobs or closing their doors for good.
Cameron Gillies, head of external affairs for SLE, said: “The current non-domestic rates system is no longer fit for purpose. The level of complexity baked into the system, along with the myriad of reliefs available, have created huge uncertainty and a tax structure which doesn’t meet the needs of either local authorities, businesses, or the Scottish government.
“This is not about reducing the tax base. The model we are proposing is based on a simpler, more stable and more economically grounded model for non-domestic rates in Scotland, which supports investment and growth rather than inhibiting it.”
The SLE model, due to be discussed with parliamentarians in the coming weeks, sets out a simplified tax system reflecting a business’s real economic capacity, taking into account the impact of inflation and offering greater certainty and predictability. Crucially, the new model will not reduce income for local government.
Cameron Gillies continued: “We are not arguing that businesses should pay less tax. Rather, it is a recognition that Scotland requires a tax system capable of sustaining and increasing the tax base over the long term. Perhaps more importantly, Scotland requires a tax system that does not destroy the very businesses that bring in revenue.
“The current system risks prioritising short-term revenue extraction at the expense of long-term business viability. A more stable, predictable and pro-growth model has the potential not only to reduce business failures and stagnation, but to strengthen public finances over time through increased investment, stronger business survival, and a broader and more resilient economic base.
“A tax system that enables businesses to succeed is a system that supports jobs and secures revenue for the future. We believe this is a win-win for government and businesses.”
The new approach to non-domestic taxation is based on a simplified formula combining:
a property-based foundation
adjustment factors reflecting sector, geography and economic contribution
standardised allowances replacing much of the complexity created by layered relief schemes
rolling revaluations
caps on annual increases
tapered transitions replacing cliff edges
forward projections of liabilities to provide certainty to the business owner
SLE is undertaking a modelling exercise to evaluate the loss in revenue associated with the current regime, as small businesses fail due to their rates liabilities. This data will be compared with the new proposed system and projected growth of businesses that remain viable and continue to pay non-domestic rates, along with other corporate taxes, plus the tax take from employees paying income tax.
The aim of the new model would be to support a thriving economy with a broader tax base which delivers multiple benefits for the whole of society.
The following examples illustrate the proposed system:
Example 1 – a farm in the Scottish Borders with diversified income from holiday lets has seen its rates bill rise by 300% to £15,000 after the latest revaluation. After reliefs are applied, the farm’s liability still stands at £10,000, accounting for more than 50% of operating profits. Under SLE’s proposals, the increase in rates would be capped at a rate linked to inflation, leading to a single figure percentage uplift and protecting the firm’s profit margin for reinvestment and growth. Greater savings from sectoral and geographical multipliers and allowances applied before the final rate is calculated would support further growth and encourage employment, whilst balancing income for public services.
Example 2 – A small scale hydro-electric power station based in the Highlands is handed a business rates bill of £120,000, wiping out most of the profitability of the business. It therefore ceases operations and closes down the plant, which had been producing green energy for the local community. Under our proposals, reliefs applied to the business based on its sectoral volatility, delivery of public good and rural location would insulate this business from an unaffordable bill. Instead of the business failing, with no rates being paid and jobs being lost, the business is supported by the system and continues to operate, providing much-needed employment in a rural area.
SLE intends to set out its proposals to MSPs in the coming weeks.