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Business Rates Rise: What Will the Upcoming Changes Mean for UK Start-ups?

14/03/2017 16:51

Starting a business is a daunting task at any time. This is even more true with the business pages full of fears about Brexit, and more recently, about the upcoming rise in business rates, which will take effect from April 2017.

You might be expecting to read more about how these rises will be disastrous for start-ups, and these tax increases are preventing innovation and risk-taking. However, as the rate rise will not affect all businesses equally, they actually present an opportunity for those just starting out.

What Will the Rate Rise Be?

This depends. The rises are assessed regionally, rather than nationally, which means the rate change will depend on how much property prices, or more specifically rents, have increased in a specific area since 2010.

This means that while certain areas of the country, especially those within London, will see huge rises (Dover Street in Mayfair will see a 415% hike), other areas, especially in the north will see small rises or even potential decreases. This rise will make it even more expensive for businesses to locate themselves in the traditional hotspots, and this may well favour start-ups.

What Does This Mean for Established Businesses?

Moving location is more difficult for established businesses than it is for a start-up. An established business might have built a reputation within a certain area, or may have other logistical reasons to be present in a particular location. Take the example of a restaurant; for this business it is not as simple as moving to a new locale to take advantage of cheaper rates. They will have designed their brand, including their interior décor, logo and online presence, as well as their product and service, around the type of customers that live in their local area, or that their location means they can attract. Moving to a different, possibly less fashionable neighbourhood, may well affect this profoundly.

What does this mean for start-ups?

By contrast, start-ups can choose where they base themselves because by definition of being a start-up, they have no previous ties. As such they can take advantage of lower overheads by basing themselves in areas where the rises will not be as large, leading to a large competitive advantage over established businesses who will not have this opportunity. For example, Wales will see a 2.9% cut in overall rateable values, with rates for shops falling by 8.8% and offices by 7%. The North-East of England will see a 1.1% fall, suggesting that it might be prime territory for a new start-up boom.

Traditionally start-ups have focused on taking space in city centre sites, and these are the locations that will see rate rises, although still not entirely uniformly, across the country. Start-ups may have to move northward, and into less traditional areas within cities or towns.

What Next?

Traditionally, start-ups have focused on taking space in city centre sites, and these are the locations that will see rate rises across the country. Start-ups may have to move northward, or into less traditional areas within cities or towns. If they do this, there are great opportunities for them to outcompete more established businesses within their chosen industry.

Business rate rises present both a challenge and an opportunity for start-ups - for those that are willing to take a leap into the unknown, the rewards are potentially huge.

Ultimately, the way in which these rate rises change the start-up landscape might be that it will literally change the landscape, with areas of the north, and less traditionally fashionable areas of London and the South-East, seeing huge investment, construction and growth.

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