The latest issue adding to the financial concerns of company directors and small business owners is the staircase tax. Mike Smith, turnaround practitioner, explains exactly what the staircase tax is and explains how small businesses could be affected.

What is the Staircase Tax?

The ‘staircase tax’ is the name that has been given to the change in the way the Valuation Office Agency (VOA), the government body responsible for valuing commercial property, assesses business rates. The new rules have been dubbed the staircase tax because now staircases have become crucial to the way business rates for companies occupying multiple floors of the same building are calculated.

Before the changes were announced, firms that occupy multiple floors of a commercial building received a single business rates bill that covered all of the areas they occupied. However, following a Supreme Court Ruling, now businesses will receive individual bills for each of the floors.

What makes the changes more complicated, and frankly, more ridiculous, is the fact that firms will continue to receive a single bill if they occupy multiple floors that are connected by a private staircase or walkway. Business occupying floors that are connected by a communal staircase or walkway will be charged two separate bills.

How are Small Businesses Likely to be Affected?

Not only will the staircase tax result in a significant increase in the business rates many small businesses have to pay, but to make matters worse, the changes are to be backdated to April 2015 in England and April 2010 in Wales. The result is that some 30,000 UK companies could be in line for backdated bill increases.

The fact that the increases will be backdated means that some bills could be handed out to ratepayers retrospectively. That means, even if businesses no longer occupy the properties in question, they could still be liable to pay the inflated rates while they were there.

In practice, that means some company owners could be forced out of business rates relief due to this ruling. That means they may also not qualify for the government’s £50 monthly cap set on bill increases for companies emerging from rates relief in 2017. And all that simply because the staircase that separates the floors a business occupies is shared and not private.

A Tax Change that Disincentives Growth

In all their wisdom, what the government has done is to introduce is a tax change that disincentives the growth of small businesses at a time when they already face unprecedented uncertainty. The staircase tax will make businesses think twice about expanding onto multiple floors of a shared building and financially penalise those that do.

Perhaps worst of all is the fact that businesses that have already expanded their workspace will now face higher business rates bills than before the tax changes were made. Clearly, any right minded person can see that many of those small businesses would have made alternative arrangements if the staircase tax had been in place.

Those who Could be Affected Should Seek Advice

Currently, pressure on the Chancellor of the Exchequer, Philip Hammond, to remove the tax hike is mounting. The fact that HMRC is still yet to resolve one-in-five business rate appeals dating back as far as 2010 certainly puts the government’s case for hitting small businesses with a punitive staircase tax system in an even worse light. Perhaps they should focus on addressing this enormous backlog first.

Even Nicky Morgan, the Conservative MP who has worked alongside Mr Hammond in the cabinet, is critical of the changes. In a moment of refreshing clarity, she said: “It can’t be right for businesses to suddenly be asked for money for something they didn’t know they might be liable for.”

However, for the moment, businesses that think they could be affected by the tax ruling may wish to seek professional help to give them some clarity about how much the additional costs could be.

Mike Smith is from Company Debt, and has been working with SMEs that are suffering from cash-flow problems, having difficulties with debt and experiencing HMRC tax problems for more than 25 years