The Government has introduced new legislation, allowing local authorities to charge cash-starved businesses an additional business tax.

The Business Rate Supplements Act has received Royal Assent, permitting county councils and unitary district councils discretionary power to support additional projects aimed at economic development.

The Business Centre Association (BCA) is warning that this is yet another stealth tax. Julie Calder, chair of the bca and director of Abbey Business Centres explains, “Councils now have the power to demand a Business Rate supplement on top of the bills businesses are already paying, such as corporation tax, VAT, National Insurance and the ever rising business rate bill.

“Despite the current economic climate, the Government seem determined to raise income from cash-strapped businesses. This is highlighted by the introduction of the workplace parking levy and potential congestion charging schemes that are set to follow.”

In Scotland a similar scheme, the Central Business Improvement District, has caused outrage from businesses in Edinburgh. Rates are being levied on local businesses in order to fund a clean-up of the prime retail district of the city.

Whilst this benefits the local retailers, and could drive footfall onto Princes Street, it has little impact on the surrounding office space – and is deemed by many businesses a waste of time due to the on-going construction work for the impending tram system.

Julie explains, “Abbey has a business centre on Princes Street in Edinburgh, the prime retail location in the city. Those occupying office space in the area are already paying high rates and there is a fear they could see an additional levy for improvements that are perceived to already be the remit of the Local Authority.”

The Government has outlined that the Business Rate Supplement would be levied on business premises with a rateable value of more than £50,000. The funds will be used for projects identified by the local authority such as tidying up local High Streets and shopping precincts, infrastructure investment and environmental enhancements.

It cannot be used as additional revenue for existing services and the amount charged is capped at 2p per £1 of rateable value.

Following extensive lobbying by the business community, including the BCA, the Government has incorporated legislation to ensure that Local Authorities undertake consultation with local businesses to determine how the funds are spent.

Jennifer Brooke, director of the BCA, says: “Businesses need to be aware that they must participate in the local consultation or be hit with a levy that brings them little benefit.

“Rates in the UK, such as a property tax, are already the highest in Europe at over 40 per cent of annual rental value. An additional 10 per cent could be terminal for businesses already heavily impacted by the current economic climate.

“Local authorities also need to be aware that businesses may vote with their feet - choosing to relocate to areas where councils are not imposing supplementary business rates.

“Ultimately, this new bill could also prove to be fatal for many in the industrial sector where they are already feeling the multimillion pound hit of the Empty Property Rates liability. In addition to paying rates on a building standing empty they could face an extra bill in the form of the Business Rates Supplement – a doubling of tax on a site that is bringing no income.

“The Government’s timing in introducing this Act is inconceivable,” concludes Brooke.

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