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Small Business rates relief

Sole Director wants to set up new company to avoid loosing small business rate relief.

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Hi everybody, 

I have a client who is the sole director and sole shareholder of a small engineering company with one premises. He has just taken on another property (both leased) as his business is expanding. He has asked me whether to set up a new company or sole tradership for running the extra business that will be going through the new premises. (It is still the same business and engineering trade as the first one). The reason he has mooted this idea is so he does not loose out on the small business rates relief and indeed still get this in the new company as this would also be a small business. There is no question of vat avoidance as both will be vat registered. I thought of the potential problems regarding associated companies and corporation tax but I do not think this applies any longer? ... for now anyway! I could be wrong? My question is apart from the fact that he will have double the administration costs (accountancy etc) and also the whole idea may have questionable ethics, can anyone think of the pros and cons of his idea? Any help is appreciated.

Replies (7)

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By stepurhan
06th Apr 2021 13:32

He is literally doing this to game the system, so there are already serious ethics issues.

From a practical point of view, if he is getting the new premises because business has expanded, how is he going to keep them separate? It isn't just a case of the costs double and that's it. They will have to order supplies separately (will suppliers agree?), keep separate bank accounts and have separate customer bases. I'm not sure what enforcement powers councils have on this, but I would expect blatant abuse to be pursued unless he keeps everything in perfect order.

I suspect the costs of trying to keep everything separate could well outweigh the benefit he is trying to achieve.

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Replying to stepurhan:
By Paul Crowley
06th Apr 2021 13:43

'I suspect the costs of trying to keep everything separate could well outweigh the benefit he is trying to achieve.'
In a normal year yes

I had one do the same. Complete pig's ear and still not properly sorted out.
He started his trade, did not register for VAT, No separation of costs.
First I found out was trying to understand the strange software entries in the proper company system.

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paddle steamer
06th Apr 2021 13:40

I looked for a few years at the reliefs but could not get definite guidance, one idea mooted (though not that seriously) was to have a drawer full of shelf companies and when units became void we would lease them to one such company, one lease to each, however the guidance on the websites of various different Councils is really not clear re aggregation, groups, etc, so I expect nearly all such arrangements are open to challenge.

I suspect this is really a question for SurveyingWeb but do not expect easy answers as I chatted with a few surveyors and none could give a definitive answer.

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A Putey FACA
By Arthur Putey
06th Apr 2021 14:44

If the Council doesn't have clear exceptions to claiming SBRR, there's nothing to stop him running the existing business (Company A) out of Unit A and the newco (Company B) from Unit B, with Company A retaining the supplier accounts and employees and recharging as required to Company B.

The practical issue is likely to be on the customer side, unless B can offer a separate service that customers will understand. If I were a regular customer of A and were told my orders would be processed by B from now on I'd probably be wary.

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By Samsung
07th Apr 2021 09:22

Thank you all for your comments. Much appreciated indeed. I really do not like the idea to be honest. I just wanted some inspiration to make sure my I am thinking on the right lines. Your comments have been very helpful. I will present the case to him and see what he has to say. If he is determined to go ahead, I may very well say I cannot help due to ethical issues. Anyone wants some clients? Wish me luck.

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By bernard michael
07th Apr 2021 09:24

I assume the following has been considered when deciding what to do
"When you get a second property, you’ll keep getting any existing relief on your main property for 12 months.

You can still get small business rate relief on your main property after this if both the following apply:

none of your other properties have a rateable value above £2,899
the total rateable value of all your properties is less than £20,000 (£28,000 in London) "

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By meadowsaw227
07th Apr 2021 11:09

C tax and associated companies !

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