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Why are supermarkets repaying their business rates relief?

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The stock market-listed supermarkets – Tesco, Morrisons and Sainsbury’s – were already under pressure to make a payment, having handed out dividends to shareholders while taking the tax-free holiday.

What happens to rates next year?

The Treasury is conducting a fundamental review of business rates with findings due to be published in the spring, although there have already been several reviews over the last decade with no major changes.

As things stand, the rates holiday comes to an end on March 31. However, at the Spending Review the Government said it would be looking at further ways to support businesses with rates bills during the next financial year. Details are expected in the new year.

The Treasury has already confirmed there will be no increase in rates next year – previously the bills would have gone up in line with inflation.

Will the supermarkets’ actions undermine the review?

If anything, it could make their case stronger. Currently, online players like Amazon only pay rates on their warehouses – which are far lower due to their locations.

Tesco’s former chief executive, Dave Lewis, called for a 2pc online sales tax, and Sports Direct owner Mike Ashley also wants rates to be overhauled with online players charged more. However, other retailers have suggested this could stifle their own efforts to increase online traffic alongside high street operations.

With Tesco, Sainsbury’s, Morrisons and Aldi stumping up cash, and others likely to follow, the pressure will be on the Government to listen more closely to their concerns as “responsible” retailers.

However, rates remain an important cash cow for the Government – the annual bill is around £40bn – and because it is a tax on property it is far harder to avoid through tax avoidance strategies.

What will happen to the money the supermarkets are handing over?

It is expected to go to HMRC in the first instance and then to the Treasury.

The Government has declined to say what the cash will be used for, but there have been calls for it to be distributed to the leisure sector after the Prime Minister’s one-off £1,000 grant announced this week for “wet pubs” was widely condemned as being too small to help save the industry from mass closures and redundancies.

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