Policy paper

HM Treasury fundamental review of business rates: terms of reference

Published 11 March 2020

This was published under the 2019 to 2022 Johnson Conservative government

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This publication is available at https://www.gov.uk/government/publications/business-rates-review-terms-of-reference/hm-treasury-fundamental-review-of-business-rates-terms-of-reference

1. Context

Business rates are an annual tax on non-domestic property. They raise approximately £25 billion in England each year, and are an important source of funding for local services, including adult social care and children’s services.

Building on the work of previous reviews, the government’s general view is that in common with other advanced economies, revenue should continue to be raised through the taxation of non-residential land and property.

Business rates are less distortive than other taxes, easy to collect and hard to avoid. However, the government also recognises concerns about the impact of business rates on ratepayers, including on the high street, and the potential need to modernise our tax system.

2. Objectives

HM Treasury will conduct a fundamental review of business rates with the objective of:

  • reducing the overall burden on businesses
  • improving the current business rates system
  • considering more fundamental changes in the medium-to-long term

The work of the review will focus on 4 main areas: These are:

  • improvements that could be made from April 2021, alongside the forthcoming revaluation including regarding the Transitional Relief Scheme
  • reforms to the current business rates system to put the tax on a more sustainable basis. This will include:
    • whether a tax on open market rental values remains the best base for commercial property
    • how open market rental values are determined, and how often
    • the effectiveness and operation of different reliefs
    • how to minimise the impact of business rates on investment and growth, including the treatment of plant and machinery
    • how the business rates multiplier(s) should be set
    • who pays the tax
  • the administration of business rates, covering the valuation and appeals process; billing; and compliance with the tax
  • exploring alternatives to business rates, particularly within the taxation of land and property.

3. Scope

Alongside supporting the government in its core aims regarding the economy, productivity and its fiscal rules, the review will also have particular regard to:

  • the role of business rates in the funding of local government and local services, and the impact of any changes on business rates retention
  • the delivery of existing reforms to the business rates system
  • the practical challenges involved in any reforms, and necessary compromises
  • the implications of the current and future subsidy control regimes
  • the implications of any changes for the devolved administrations

The review will not consider the overall level of funding for local government.

4. Governance, engagement and timetable

The review will be carried out by HM Treasury and will report to the Chancellor of the Exchequer and the Financial Secretary to the Treasury.

The review will publish a call for evidence in spring 2020, and will report by autumn 2020.

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