As shareholders receive a bumper payday, supermarket giants to net almost £2bn in tax breaks

The UK’s largest supermarket chains are set to benefit from almost £2bn in business rate tax breaks this year despite sales soaring during the pandemic, according to new analysis. It comes after Sainsbury’s and Tesco both paid millions to shareholders in dividend payouts despite accepting state support in the form of business rates relief for the 2020-21 financial year.

Tax made easy

At the start of the pandemic, the chancellor announced a business rates holiday for retail, leisure, and hospitality firms until March 2021. New data compiled for the PA news agency by real estate adviser Altus Group projects the UK’s four largest grocers – Tesco, Sainsbury’s, Asda and, Morrisons – and German rivals Aldi and Lidl – will save around £1.87bn as a result.

This is set to represent more than one sixth of the total £10.1bn business rates bill which has been written off for all businesses during the year.

Tesco, the country’s biggest employer and largest grocery chain, is expected to receive a benefit of around £585m from the tax break, Altus said. Sainsbury’s is expected to save £498m from its rates holiday for the year.

Last week, Sainsbury’s said it had received a break worth £230m for the half-year to September in an update which also saw it reveal plans to axe 3,500 jobs. However, the company came under fierce criticism as it also declared an interim dividend of 3.2p plus a special dividend of 7.3p for shareholders.

Sainsbury’s said its business rates holiday was more than offset by an increase in costs, due to the pandemic, and added that a large portion of the dividend payout related to trading before the pandemic.

Last month, Tesco paid £315m in dividends to shareholders despite its own rates windfall.

Fishy

Retail analyst Richard Hyman told PA that “something doesn’t feel right or smell right” about dishing funds out to shareholders in the circumstances. He said:

In my opinion, the timing of the dividend announcements just feels like a PR own goal. Tesco and Sainsbury’s have both paid some dividends related to trading before March which I think is fair, but after that you can question it.

Since the pandemic, there has been great public support for the work supermarkets have done and this risks knocking that back. They have also taken on big costs. The shift to online will not help them run profitably, so it is definitely quite a complex issue.

On Wednesday, the chief of value retailer B&M Bargains, which has stayed open through lockdowns, paid his offshore family trust £44m in dividends as it saved £38m through the rates holiday.

Hindsight

Last week, Julian Richer, chief executive of non-essential retailer Richer Sounds, said he was “really annoyed” the grocery chains benefited from the tax break as they also saw “queues around the block”.

The figures from Altus show Asda is projected to save £297m, Morrisons around £279m, Aldi £109m, and Lidl £108m, for the year.

Robert Hayton, head of property tax at Altus Group, said:

Some parts of the retail sector have managed to thrive during the pandemic and the rates holiday has been the icing on an already very sweet cake.

But, with hindsight, did the Big Four need around £1 in every £6 of business rates relief made available?

In Wales, the six major supermarkets still had to pay around £78m for rates for some stores as a result of devolved business rates.