Over £200 million in small business tax relief is likely to be lost as a result of confusion over business rates policy within the government. Many councils are following outdated Whitehall guidance and have imposed a deadline of today on claims for the Small Business Rates Relief, worth up to £1,100 to firms.

However, the Department for Communities and Local Government (DCLG) said some local authorities are failing to follow its guidance.

Two years ago, the department scrapped the rule that meant applications had to be submitted within six months of the end of the tax year. A more lenient three-year deadline means applicants have up to 2010 to apply for the 2007-08 tax relief.

Mark Prisk, the shadow small business minister for the Conservatives, is taking on the issue. “If central and local government are sending out different messages to small businesses I am going to the minister and saying that we need clarity. Is there a deadline or isn’t there?” he said.The scheme is open to premises with a rateable value of less than £10,000, and is key to the governments attempts to reduce what it acknowledges is the disproportionate tax burden on small businesses.

Some 870,000 firms are eligible for the rebate, introduced in England in April 2005, says the Local Government Association (LGA), but only half have claimed. The DCLG insist that it is up to local councils to ensure firms use the scheme.

A spokesman said it had “made it clear to councils, both through guidance and information letters” that SMEs who want to apply for the relief need only to do so once every rates valuation period.

“Ratepayers have until September 30, 2010 to apply for rate relief covering the years since 2007-08,” she said. It’s up to councils to ensure that information on heir websites is correct, she added.

However, council websites and application forms for the relief often state that if today’s deadline is missed then tax relief for 2007-08 cannot be claimed. Councils citing the deadline include Birmingham, Doncaster, Suffolk Coastal, Carlisle, Teesdale, Rossendale and Allerdale.

Sir Simon Milton, the LGA’s former chairman, said: “When local businesses are facing rising costs, it is vital that they apply for the tax relief they are entitled to.”

The government estimates that the cost of the scheme in the year to March will be around £235 million, slightly less than 2006 when it cost £237 million.

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