Gordon Brown's Tax Plan Could Sink Many Small UK Retailers

by Jason Gorringe, Tax-News.com, London

10 March 2003

Chancellor Gordon Brown's plans to apply a higher rate of stamp duty could seriously affect the UK's retail sector leading to job losses and small business failures according to a claim by the British Retail Consortium (BRC) last week.

According to a statement released by the BRC last week, restructuring of stamp duty according to a plan currently before Financial Secretary Ruth Kelly could see some tax payers facing a 1,000% increase in the cost of stamp duty. This would net the Treasury an estimated £1.4 billion in extra revenue.

The changes specifically target 'lease duty', which is the rental equivalent of Stamp Duty, and is charged at the start of a shopkeeper's lease and in subsequent rental payments. However, the Treasury felt that many firms preferred to lease properties to avoid paying Stamp Duty, and after a consultation exercise decided to increase lease duty to close this supposed loophole.

According to business website Startups.co.uk, it will mean a small firm who has paid a one-off premium of £80,000 for a ten year lease on a property with a total yearly rent of £20,000 will now pay £8,400 in tax, a hike of over £7,000.

It is thought that this measure will have the most serious impact on small and medium sized retailers attempting to enter the market, and Director General of the BRC Bill Moyes warned: "If the treasury goes ahead with the proposed reform of Stamp Duty, the Chancellor's need to balance the books could have a devastating effect on retail jobs and new business start-ups."

The UK retail sector has grown significantly over the last few years, and has played a major role in propping up the economy at a time when global economic fortunes have taken a significant downturn. The BRS fears that an increase in costs for retailers could have serious knock-on effects for the rest of the UK economy.

"Modernising an antiquated tax should not mean putting the brakes on the one reliable engine of growth in the UK economy," said Moyes adding "Suffocating innovation and undermining investment is a strange policy for the Treasury to advocate."

The plans do include some good news for small retailers however. Under the new legislation, no duty will be levied on a shop which pays less than £5,000 per annum in rent, and has a lease lasting under 7 years. However, this seems little consolation for the many business who could face massive tax bills as a result of the new proposals. The BRC urged the Gordon Brown to rethink his plans on stamp duty, concluding "The Government must not include the proposals as they currently stand into the Budget."

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