As the first business rates revaluation since 2010, the coming changes on 1st April 2017 are set to be the most redistributive of the last generation. Businesses across London, both large and small, are expecting particularly significant increases for the next five year period.
On top of that, according to the latest research from business rates consultants, businesses could face an extra £1.9billion in business rates over the next five years with the introduction of a new Enterprise Bill, which outlines changes to the system of appeals against business rates valuations.
Vacant property security specialists Oaksure Property Protection issued a statement on the new business rates appeal system, debating whether the government’s proposed Enterprise Bill would ensure a fairer business rates system. “There are concerns about the degree of transparency that will be involved,” they warn. Can small businesses survive this bill?
How are business rates calculated?
Business rates are calculated on the rateable value (RV) of your business property, multiplied by the correct ‘multiplier’—the number of pence per pound of rateable value that you’ll have to pay in business rates. These are set by central government and reviewed every year in line with inflation.
Typically, the RV of all properties are reviewed every five years given by the Valuation Office Agency (VOA). The RV is the annual market rent that a tenant would pay to occupy a commercial property, assuming them responsible for all necessary repairs to maintain the premises in a reasonable condition. April 2017’s business rates revaluation, based on the rental values of properties on April 2015, is two years overdue.
What are the changes to business rates appeals
Under the old appeals system, ratepayers who were unhappy with their business rates assessment may make a ‘proposal’ to alter their assessment to be debated between the VOA. If an agreement is not reached, the matter is referred to the Valuation Tribunal for England (VTE) for determination.
The VTE is currently dealing with an estimated backlog of 280,000 appeals to business rates and rateable values. The organisation, suffering from public sector cuts, only managed to resolve 64,000 appeals last year, less than half its target. The process is said to be highly inefficient.
Details of the new system were outlined in the new Check, Challenge, Appeal documentation first published in October 2015, which is planned to come into effect with the ratings revaluation on 1st April.
The ‘check’ stage requires the ratepayer to validate, extensively, the facts on which their rating is based, and cannot make any formal challenge to their assessment until this is done. The ‘challenge’ can only be made four months after the ‘check’ stage is complete. Only then will the VOA provide a “proportionate” response to the challenge. Another four months after completion of the ‘challenge’ stage can an ‘appeal’ be made to the VTE for an appeal fee of between £100 to £300.
While there is general agreement that the old appeal system does not work satisfactorily, the proposed new system has been criticised for discouraging ratepayers, particularly smaller businesses, from appealing at all.
U-turn on the bounds of reasonable professional judgement
In an attempt to reduce the number of appeals against incorrect valuations of commercial property, a new system also sought to permit the VTE to dismiss any appeal within the bounds of ‘reasonable professional judgement’, even if an overvaluation can be proved. The proposal would “all but remove” the ability of businesses to appeal ratings decisions, rates experts claimed.
British business lobbies and employers’ groups including the Confederation of British Industry and the Federation of Small Businesses recently united in condemning the “outrageous” changes to rates appeals, questioning the legality of the proposals.
Following pressure from these groups, following the Budget 2017, the DCLG confirmed the so-called ‘Professional Judgement’ Test will not form part of the ‘Check. Challenge. Appeal’ regulations. Minister Sajid Javid has since been praised for proving his commitment to ensuring firms pay fair and accurate tax, without rebates being curtailed. “he should be commended for taking on board the concerns of business,” said CVS Chief Executive Mark Rigby.
Can small businesses survive changes to business rates appeals?
With the announcement of details of a £300 million bail out fund for small businesses, SMEs might just weather the coming increase in business rates better than the sensationalist press would have us believe. But changes to the system of business rates appeals can be both hit and miss.
In fact, the British Beer and Pub Association (BBPA) and the Association of Licensed Multiple Retailers (ALMR) have both welcomed proposed changes to business rates appeals, which they have described as more ‘streamlined’: the ‘Challenge’ stage of the appeals process involves a more detailed dialogue with the VOA on contentious points. Nevertheless, they would still like to see more transparency with regards to the terms of appeal.
The Government’s planned appeals regime also proves particularly unfair to those needing to appeal their property’s rateable values because of a material change in circumstances. Back in November, the Federation of Small Businesses warned “businesses that are already struggling could be pushed into insolvency, with smaller firms particularly at risk.”
Meanwhile, there are still warnings being issued that the backlog of business rates appeals still being handled by the VOA under the old system could still result in troubling delays for small businesses, with 25,000 appeals from the backlog still not settled after seven years. Even before the changes come into effect, the figures for successful business rates appeals are falling.
Business leaders have continued to fear that the extraordinary backlog will place more pressure on companies facing steep rate rises from April 1st.