The next business rates revaluation will come into effect on 1 April 2017 and will assess all business properties in England, Scotland and Wales based upon rental values as at April 2015. This revaluation is the first since 2010 when the world seemed to be commercially imploding.
The revaluation is already two years late as the government decided in 2012 to defer the 2015 revaluation. The thinking was that the delay would avoid firms facing unexpected hikes in their business rates bills over the next five years. The reality is somewhat different.
Chris Stevens, director at real estate advisers, Bilfinger GVA, thinks the delay has not been kind to businesses. “Research has suggested that the decision to defer the 2015 revaluation has meant that businesses in the North and Midlands have faced an additional £2.3bn from the start of the 2015/2016 financial year until the revaluation in 2017.” From his point of view, a 2015 revaluation would have rebalanced the tax base and offered much needed relief to the sectors and areas hardest hit by the 2008 economic downturn. He expands: “The two-year postponement magnified just how detached rateable values are from real market conditions. This disconnect, coupled with the time-consuming appeal process has led to various lobby groups from the retail and industrial sectors to call for a major overhaul of the rating system.”
Indeed, The Daily Telegraph reported, in September 2014, that more than 100 of the UK’s largest firms wanted an overhaul of business rates. While many of the signatories were in retail, others were from manufacturing, property, construction materials, catering, and brewing.
Amy Hutchinson, marketing director at the BPIF, reckons that most members are aware that a rate revaluation is on the horizon for 2017. The BPIF is concerned that the rate rises will be more dramatic than it would otherwise have been without the delay. And it seems to be worse for the printing sector says Hutchinson: “The feedback we’re hearing is that for printers in London particularly, there will be a real impact in rising rates. We’re speaking to members who are reporting above-average rises [who are being] hit by the inclusion of plant and machinery in business rate calculations.”
With such calls for an overhaul the government announced a review in March 2015. However, former chancellor George Osborne announced that any reforms would be fiscally neutral. As Stevens notes, “this is not much of a surprise considering the tax revenue is over £25bn and has a collection rate close to 98%.”
Some hope
The review offered one small ray of hope to SMEs; that from 1 April 2017 the Business Rate Relief will permanently double from 50% to 100% and thresholds will rise to benefit a greater number of businesses. “This means,” says Stevens, “that business property with a rateable value of £12,000 and below will receive 100% relief and businesses with a property with a rateable value between £12,000 and £15,000 will receive tapered relief.”
The effect of this is that some 600,000 small businesses, occupiers of a third of properties, will pay no rates at all – a saving of up to £5,900 for each small business in 2017-18. While this is great news for small businesses, Stevens notes the problem: “As the changes to business rates are to be fiscally neutral the fall in revenue from this concession will need to be made up from the remaining ratepayers.” And that’s precisely what some – the larger rate payers – are finding.
The actual revaluation is conducted by the Valuation Office Agency (VOA), part of HMRC, and a draft list was published on 1 October 2016.
“The first thing to note,” says Stevens, “is that the government set the multiplier – the pence in the pound which when multiplied by the valuation gives the final rates bill – for 2017/18 at 46.6p which is lower than they indicated back in September. The chancellor announced in the Autumn Statement that those facing the highest rises in rates liability because of the 2017 revaluation would see these increases capped at 42% in 2017/18 instead of 45% as originally proposed.” Stevens thinks this poor consolation to the occupiers of large properties who will see their rateable values increase significantly from April 2017. Medium and small properties will see increases phased at a more gradual rate of 12.5% and 5% respectively.
But it’s the draft list which will motivate firms to appeal the assessment, and where there are clear factual errors relating to a property ratepayers should contact their local Valuation Office as soon as possible. However, discussions on the actual valuation must wait until after April 2017 when the appeal process formally begins.
Appeals process
Another aspect to the 2017 revaluation is the reform of the business rates appeal system. The new procedure, called Check Challenge Appeal, is designed to streamline the process and reduce the vast number of speculative appeals.
On this communities secretary Greg Clarke commented that: “For too long we’ve had an appeals system where backlogged cases – often caused by unscrupulous agents eyeing up a fast buck – have meant unnecessary costs and uncertainty for all involved.”
Check Challenge Appeal breaks the appeals process down into three stages.
Check – the ratepayer confirms the floor areas, rent and specification of the property. The Valuation Officer (VO) reviews these facts and, if appropriate, amends the rateable value. There will be a maximum penalty of £500 if the ratepayer provides false information “carelessly, recklessly and knowingly”. If matters are not resolved within 12 months, ratepayers will automatically move on to Challenge.
Challenge – the ratepayer has four months to formally challenge the VO’s rateable value. The ratepayer must provide full supporting information, their valuation, comparable evidence and detailed reasons why the rateable value is wrong. Negotiations should take place before the VO issues its formal response. This stage could take up to 18 months and if an agreement cannot be reached the case is escalated to Appeal.
Appeal – the ratepayer has four months to submit an appeal to the Valuation Tribunal. At this point no further negotiations can take place and only in exceptional circumstances can new evidence be introduced. A hearing fee of £300 is likely to be charged.
The problem for ratepayers is that the VOA is likely to require all information to be submitted online, and failure to comply with the procedures or timescales will result in the case being thrown out.
The process is going to be onerous says Stevens: “Whilst the new system is being introduced to improve transparency and to streamline the process, we are concerned about the increased burden on the ratepayer to supply details which the VOA should already know, and the length of time it might take to agree a revised rateable value.”
Check Challenge Appeal doesn’t sit entirely comfortably with the BPIF either. From Hutchinson’s point of view, she’s hoping that the promised system is “cheap, quick and as easy-to-use as possible. If it’s complicated, costly and time-consuming it goes without saying that it’s a huge disincentive to appeal, especially for SMEs.” She questions the length of time the VOA is allowed to feed back to the business at each stage of the regime and in terms of fees, she says “while it’s helpful that fees at the Appeal stage are lower for small businesses, we will be monitoring to see whether the government is correct in its assumption that the vast majority of cases will be resolved before requiring an appeal.”
Get advice
Chris Lambert, managing director at Whitestone Commercial, a Royal Institution of Chartered Surveyors (RICS) registered rating practice, stresses that it’s worth finding a reliable adviser, especially as the right of appeal is in most cases limited to just one attempt.
His first point is that “it is better to use an experienced rating surveyor than to try and make the appeal yourself. You may receive a reduction, but there may be a higher reduction if you use a knowledgeable chartered surveyor.”
The next tip should be obvious: “Ensure that the rating surveyor you use is skilled in this area of valuation and the specific type of property you occupy.” He points out that there are many unqualified agents who will convince you that they know what they are talking about. “Be careful to not be drawn in by false or unrealistic promises. Ensure they are members of RICS and the Institute of Revenue, Rating and Valuation.” The point is that using a chartered surveyor with previous experience working with the VOA means they will have a better understanding of the savings that can be made.
Only use a chartered surveyor who has knowledge of your area and who is local to you. Says Lambert: “Be sure they inspect the premises and area to familiarise themselves so that they can put forward a good case. At the same time, be very wary of anyone asking for up-front fees. Most professional firms charge a percentage of the saving once your appeal has been settled.”
On fees, Lambert says they can range from 25% to 50% of total savings. “Be careful not to necessarily go for the cheapest, as it is better to have 50% of a lot than 80% of a little.”
Remember – appeals can lead to increases as well as reductions says Lambert – “a good surveyor should inform you of the chances of this and his considered view as to whether it is wise to appeal.”
Lastly, not all surveying practices will have a dedicated rating surveyor. “If rating is one of many services, you can be fairly certain they do not have specialist expertise to deal with anything but the simplest of rating appeals.”
The BPIF is raising the revaluation in meetings with members says Hutchinson and the pattern being heard is that for members outside of London, the revaluation and consequently lower average rates is welcome, but London is different: “Martin Stern, owner of Purbrooks in Wimbledon, told us that his business will suffer a 12% increase in rates – this is on top of the lack of regional growth grants available to London companies, higher overheads, congestion charging and so on.”
Hutchinson also talks about Michael Burman of FE Burman in Southwark. She explains that in Burman’s case, clear miscalculations have been made regarding the designation of various parts of his premises, for example with lower-rated storage areas underestimated and higher-rated production areas overestimated. “So for Michael and his team, there’s a job to be done at the Check stage to carefully measure each part of the site and submit the correct figures. For Michael though, the advantage of being based in Central London still stands” – a showroom that allows customers to see what’s on offer.
The London experience
Paul Manning, managing director of Rapidity, is decidedly unhappy about the revaluation. He says “it’s going to cost us a fortune, frankly. I just don’t understand what this government is trying to achieve by the constant over taxation of business in the UK. It’s an utter joke.”
Manning checked Rapidity’s new rateable value and is going to appeal. It’ll be the first time that he’s done so in the company’s 30-year trading history, adding: “I think the government has actually made a new, thriving business rates appeals industry.”
For Rapidity, the rates issue has come to a head. “There’s been an explosion of rents in London over the last three to five years and rates are tracking this.” Manning thinks that we now have “the first anti-business Tory government ever - they’re really hitting the heart of business and are really going to push up everyone’s rates in and around London.”
Manning’s just appointed an adviser who, as chance has it, is one of his own clients – “they’re a well-respected property company.” As might be expected, he gets plenty of cold calls from firms that say they can reduce his rates bill: “Never a week goes by without a call – I just don’t take them seriously.”
However, he isn’t very optimistic: “I’m not going to get my hopes up, especially if rates are linked to rents.”
Manning isn’t surprised that a new appeals regime is being brought in and he’s especially bothered that even if a valuation is within 15% of the correct value it won’t be altered: “They’re kind of couching their positon; they’ve made it harder for anyone to appeal.”
Going forward, Manning would like to see a process that is more managed: “Revaluations on a five-yearly basis just don’t work. Instead business rates would be better off being a tax based on the business itself and its performance (like corporation tax), the Bank of England base rate or RPI as opposed to penalising businesses based on their location.” He thinks that rates increases are putting firms out of business, especially in Central London – “rents are already astronomic so linking astronomic rents to rates seems ridiculous to me. London is becoming too expensive across all industries and it’s pushing printers out of London. Every few months someone leaves and you can’t blame them.”
A view from the provinces
Terrye Teverson, managing director of Launceston based KCS Print, isn’t sure of the implications for her business. However, geography clearly will have a bearing on her valuation and she suspects that she’ll come out of the process with little pain: “We are in one of the poorest geographical areas in the country - Cornwall.”
Teverson recognises that the 2017 valuation is only one part of how her rates bill is calculated; the other part of the equation is the government’s multiplier. “We’ve checked our new rateable value, but [for us] even if the rateable value stayed the same we do not know the multiplier that the government will set for 2017 and this could mean our costs go up.” She’s seen her multiplier rise from 40.7p in 2010 to 48.4p in 2016.
While Teverson has previously not felt the need to appeal her rates bill, she would if she thought the cost increased above inflation. She knows who she’d engage: “I would choose someone with RICS status. I do get a lot of phone calls from firms that say they could lower the rates and who are working with others on the industrial estate. I have never used these people though as I don’t like the cold calls.”
In speaking to Teverson she sees the new appeals regime adding hurdles to the appeals process: “It makes it more difficult to appeal as you are not able to get access to the evidence that the valuation officers use to come up with the rateable value of your property. You can only appeal once and there are limited things to appeal against.” She notes that the rates payer must pay the bill before it can be challenged.
In parting, she says that no matter the effect of the revaluation, “for a small company rates are a large burden on the business overall. And in rural areas we don’t get much help on economic development.”
More information
BPIF associate member Lambert Smith Hampton (www.lsh.co.uk) has considerable experience working with print companies to challenge their rateable values
www.gov.uk/correct-your-business-rates
