Business Rates 2017 Revaluation

By way of background, the last revaluation of commercial property for rating purposes was carried out in 2010 based on rental values as at April 1st 2008, before the collapse of Lehman Brothers and the financial crisis – since when the commercial property market has experienced considerable variations.

The new “Draft” Rateable Values were first published on September 30th last year and come into effect on 1st April this year. The new rating assessments are broadly based on the Valuation Officer’s opinion of annual rental value for a property as at April 1st 2015.

Initial indicators prior to new draft rating assessments were that the regional Office sector outside of London, and which had only recently shown a return to growth and yet to reach 2008 levels, could potentially benefit from a reduction in assessments.

Retail rents have generally fallen accept for specific destination locations and it was anticipated that this sector in particular would benefit from a fair rebalancing of the rates burden.

The industrial sector, as a whole, has experienced less volatile conditions than retail and offices with prime locations in the West Midlands showing positive growth compared with 2008 and it was anticipated that the occupiers of good quality industrial and logistics properties would see a rise in their 2017 assessments.

The above has not been the case and in certain areas we have seen surprising increases in particular for retail properties, some in deprived areas which have struggled to attract tenants for many years. The new industrial and warehouse assessments also suggest that there is a divide with Central and Western locations rising compared to assessments to the East and South East of the Country falling.

Rating revaluations of commercial property are designed to be “revenue neutral” and to reflect the changes in market conditions rebalancing the rates burden across the Country. However, we have seen some areas with surprising increases and in particular some sectors being adversely affected. For example, many trade related properties such as pubs, restaurants, guest houses and hotels will see a considerable rise in their assessments and the Association for Licence Multiple Retailers (ALMR) has written to the Chancellor, Philip Hammond, asking for relief for this particular sector. The ALMR says on average, the pub sector will see a 15% increase and restaurants a 23% increase across the Country adding in the region of £300m - £500m in additional costs to the hospitality sector.

Furthermore, some of the biggest employers and employers groups in the region have added their weight and voice to the debate over the new Business Rates Assessments with the Chief Executive of Sainsbury’s, Mike Coupe, whose firm faces a rise of almost £120m to £500m, arguing that the revaluation would reduce bills for online retailers such as Amazon while many of its high street rivals would face sharply higher bills. The Supermarket boss is the latest critic of the first revaluation in 7 years, and Coupe went on to say “The way it currently stands, there is an advantage for those without bricks and mortar operations, so there is a strong case for a level playing field and business rates and taxation more generally”.

At the same time as the revaluation, the Government have introduced a new “Check, Challenge and Appeal” procedure for ratepayers to contest their rating assessments. The Valuation Office Agency (VOA) will have a “minimum” of 12 months to “Check” factual matters, such as floor areas, before moving onto the “Challenge” stage which could take a further 18 months of discussions before an incorrect rating assessment can be amended. It is only after the “Check” and “Challenge” stages have been completed that the matter can then proceed to the “Appeal” stage if agreement cannot be reached .

The VOA already have in excess of 180,000 outstanding appeals on the current Rating List and the Government want to quite rightly reduce the number of rating appeals. However, some of the UK’s biggest employers groups are outraged with potentially further changes to the appeal process in England.

Plans to introduce a “allowable margin of error” within the VOA’s Assessments have been muted, as high as 15% within which an appeal could be rejected but which are simply not true according to Government. The British Retail Consortium and CBI as well as the Federation of Small Business, REVO, the Association of Convenience Stores, the British Chambers of Commerce and British Property Federation have all written to the Government calling for any such “allowable margin of error” to be dropped.

It is true that as a result of changes to Business Rates Relief thresholds approximately 600,000 small businesses with Rateable Value’s below £12,000 will not pay rates at all. It is further true that ratespayers experiencing ‘considerable’ increases will receive some relief through a Transitional Relief Scheme limiting increases and decreases in ratepayers liability compared to their previous years liability. However, for a “medium” property with a Rateable Value above £20,000 and below £100,000, the Transitional Relief still amounts to a “capped” increase of up to 12.5% for 2017/18 compared to 2016/17 and which increases year on year. In the majority of cases, relief will only be applicable in the first couple of years and ratepayers will be liable to a full liability thereafter.

Many businesses quite rightly have their attention focused on any increase in their assessment from April. However, appeals can still be made against the current assessments up to March 31st with refunds back dated to 2015. These appeals also have the potential to directly reduce the new assessments from April 1st .

The Valuation Office Agency (VOA) have a considerable backlog of appeals on the current Rating List, this backlog, together with the introduction of the new appeal process and the inevitable Government cuts in VOA staff and funding will no doubt make the appeal process even more challenging.

The Chancellor has said that he is “listening” to the concerns of business surrounding the new assessments and appeal process. It can only be hoped that the higher than expected public sector net borrowing surplus announced for January to the tune of £9.4billion will result in some measures being announced in the forthcoming budget on 8th March to address some of these concerns.

Bulleys Chartered Surveyors provide a free initial consultation service on both current and proposed rating assessments.