Staircase Tax and its Impact on Small Businesses

Many businesses were eager to hear if they would receive any relief from Property taxes in Philip Hammond’s 2017 Autumn Budget.

But there was also mention of the so-called ‘staircase tax’. Hammond touched on measures to solve issues surrounding the tax and the calculations of business rates.

In November 2018, Parliament enacted legislation to reverse the impacts of the staircase tax for small businesses. According to the BBC, this tax unfairly affects 1000s of businesses with most of them being SMEs.

What is staircase tax?

In theory, this tax relates to how businesses define a single business space. The Valuation Office Agency (VOA), following the court judgment mentioned below, allocated different business rates for individual floors or units within a building linked by public areas.

In practice, it's the business rate that a company can pay to occupy more than one adjoining floor with a communal area. Such areas include staircases and lifts.

In essence, businesses would in many cases receive individual business rate bills for each floor or unit they occupy.

Staircase tax explained

The tax got its name because it applies when you use a communal lift or staircase to access another floor or unit in a commercial rented building.

After a Supreme Court ruling in the Woolway v Mazars case in 2015, the staircase tax went into place.

The case concluded that business tenants who work out of various floors within a building can only treat all floors as being at the same location, for purposes of business rates, in certain defined circumstances.

This was only if it's possible to move between floors without leaving the space that was specifically rented to you.

Thus in cases where the business operates on multiple floors or units, but with shared "communal access" between them, they needed to treat each floor or unit as an individual commercial location.

Some businesses with more than one floor in the same building saw their business rates rise significantly. The situation worsened when businesses discovered that they'd have rates backdated to 2015.

This outcome was despite the fact that businesses with an open market rental value of less than £51,000, multiplied the value (for 2017-18) by 0.466 to determine the size of your business rate. For businesses with a higher value, you multiplied it by 0.479.

In addition, some businesses that were eligible for Small Business Rate Relief, but which saw their property split into parts following the Mazars judgment, may have lost the relief because they now had two or more rateable units.

What it means for businesses

With the new legislation in place, businesses can now request to have their rates recalculated. If you're operating from adjoining units or floors, your business rate is now calculated under the new system.

What to do?

The new legislation allows for businesses affected by the staircase tax to have their original bills reinstated.

With regards to SMEs, this change comes as a relief as most were not prepared for the charges. The hope is that this change paves the way for further reforms to the business rate process.

Although this legislation does not remove all of the difficulties surrounding business tax, it does help owners to reduce the costs involved.

Expert advice

Our taxation services can help navigate the ever-changing and complex tax environment as well as to prevent HMRC investigations.

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