The property sector will face more economic pain with large tax increases in October, according to an expert.
Mark Clapham, director in the rating department of Lambert Smith Hampton’s (LSH) Birmingham office, warned that a rating revaluation and business rates rise was going to hit hard.
He said the beleaguered retail and office sectors would be worst affected, but believes the largest tax increases are expected in London and the south east.
However, a spokesman for the Valuation Office Agency (VOA) said the claims were unnecessarily alarming and next year’s revaluation would mean an overall fall in rates.
Mr Clapham said: “The tax hike comes at a difficult time for the UK property market, which is still suffering as the recession continues to place downward pressure on rents and capital values.
“Substantial increases in business rates across the UK will be extremely painful to bear for many firms where cash flow is already very tight, even though a phasing regime is proposed by the Government.”
The rise is a result of the five-yearly rating revaluation by the VOA, which based its figures on a pre-recessional property market in April 2008.
Businesses will receive notification of their new rateable values following publication of the draft 2010 rating list in October 2009, and these figures will form the basis of business rates payable until 2015.
Mr Clapham said the VOA has based its figures on pre-recession values and many businesses will be paying tax on values higher than their present day worth.
According to recent LSH research, the Quarterly UKIT Bulletin, the recession has seen property values drop 45 per cent below their peak.
Sectors such as retail and offices, which experienced significant growth prior to the downturn, will be particularly hit by business rate increases, Mr Clapham added.
He said LSH has already worked with a number of UK property owners who are expecting to pay rates 30 per cent above their existing demand within two years.
The tax rise will come into effect six months after the October notification in April 2010, and it is within this six-month window that businesses need to identify any anomalies or inaccuracies within their proposed assessments.
Latest VOA statistics suggest that there are almost 1.8 million properties due to be re-valued, with a total rateable value in excess of £51.5 billion, from which the Government will be hoping to receive approximately £22 billion in tax revenue per year.
A VOA spokesman said: “These broad claims cause unnecessary alarm. In fact next year’s revaluation will mean an average fall in the region’s total rates bill of three per cent or £55 million after transitional relief – with lower bills for key sectors such as industry and manufacturing, offices and high street shops and retail outlets.
“Additionally, the government’s £2 billion transitional relief scheme will also help businesses in the current climate to phase in and cap increases. This is on top of other support for business including help for small business, deferring tax payments and free business health checks.
“Ratepayers will receive their new rateable value in October, and have the chance to check or query it with the VOA directly and work out their bill with no need to pay an agent.”