Business Rates - Are they going through the roof?
Karen Faux
Friday, June 14, 2013
High business rates have long been a threat to nurseries' sustainability and some practitioners believe it is time the Government changed its mindset. Karen Faux reports.
Dissatisfaction with business rates seems to be reaching an all-time high. While beleaguered nursery owners have the option to appeal if they feel their rates are too demanding, this is not a decision to be taken lightly.
But for Scott McCubbin, owner of It's The Little Things Children's Day Nursery in Liverpool, it was the only remaining line of attack.
He says, 'In our case the rates have gone up by 25 per cent since we opened in 2006, while at the same time inflation, utilities and wages have risen. Due to the financial climate we have been unable to increase our fees until very recently.'
The problem of unaffordability has been exacerbated by the Government's decision to postpone its five-yearly re-evaluation of rates until 2017. This means businesses will continue to pay business rates set in 2010, pegged to rent levels in 2008.
'This is bad news for the sector,' says Claire Schofield, director of membership and communications at National Day Nurseries Association (NDNA). 'Business rates are always a big issue, with 53 per cent of respondents to our last business survey stating they posed a challenge to sustainability. Now we have a situation where businesses are facing another four years of rates at an unrealistically high level.'
BETTER MODELS
Business rates are a local tax paid by the occupiers of all non-domestic/business properties in England, Scotland and Wales. They help to pay for local services and are calculated by the local authority. They contribute five per cent of the UK's tax income and are one of the Government's biggest sources of income.
How much a nursery pays will depend on three factors: the rateable value of the property, the multiplier set by central Government and the rate relief schemes that a nursery is eligible for.
Business rates are administered by the Valuation Office Agency (VOA), which is an executive agency of HM Revenue and Customs (HMRC). It provides the Government with the valuations and property advice required to support taxation and benefits. It also delivers a range of statutory and non-statutory valuation and surveying services to more than 4,000 public sector bodies.
The VOA has details of rates, which can be checked on its website. Rates will vary according to location, type of premises (whether purpose-built or conversion, for example, floorspace, and use of floors (upstairs rooms are often cheaper than downstairs).
The NDNA has long been campaigning for a reduction in business rates, on the basis that nurseries are providing a public good and should be recognised as such.
'Both Scotland and Wales have systems that provide rate relief,' Ms Schofield says. 'In Wales, for example, the economic case for supporting childcare has been recognised, where nurseries can receive 50 per cent relief on business rates up to £12,000 a year.'
But for England, she feels this needs to go further. 'You have to be quite a small nursery to benefit from this, so we would really like to see this idea extended so that larger nurseries in England could potentially benefit.'
'PREPOSTEROUS'
Mr McCubbin says he believes that the VOA system is not joined up with Government thinking on childcare.
He explains, 'It's a blanket approach from VOA despite the fact it is a Government agency, and it goes against the local imperative to promote more, quality childcare.
'Is the Government really trying to incentivise nurseries to base themselves in unsuitable premises - that's to say, in a small semi, on a busy road with a small garden, rather invest in a safe and greener environment?'
Mr McCubbin feels he is being penalised for prioritising quality. 'We provide quality nurseries that have been recognised at a local level and by national awards, but typically we spend 70 per cent of revenue on wages, followed by rent, utilities and business rates,' he says.
'Rents across the UK have gone down (by an average of 30 per cent) with property agents describing the inflation-like increases in business rates as "preposterous", while businesses are paying height of the market levels in 2013.'
Mr McCubbin refutes the VOA suggestion that nursery fees have risen comparably. 'We have recently started charging more but this doesn't offset the cost in rent, utilities and staff,' he says. 'We didn't go into this business to make a fast buck and we are happy to invest in our property and location but it grates when Government agencies are not working together and don't recognise the sector's standing.'
GOOD ADVICE
Ken McArthur, owner of Polly Anna's Day Nurseries in York, says that after salaries - depending on rent or mortgage - business rates are often a nursery's next biggest cost.
'Over the years my approach has been to automatically appeal against every rate review, and so far I've always been successful and this has resulted in very significant savings over each five-year period for the business.'
But Mr McArthur recommends getting expert advice. 'A good advisor will be able to tell you if you have a chance of a successful appeal and will only take on the case if you do,' he says. 'That means you receive a free service until they save you money. In my experience, the savings have been considerable.'
NDNA uses chartered surveyor Storeys Edward Symmons as a benefit partner, giving its members a discount on its commission.
Ms Schofield corroborates the importance of getting professional advice. 'Those who have concerns must give careful consideration to whether it is worth pursuing a claim,' she says. 'Nurseries need to understand what is a competitive rate of commission provided by advisors and make sure they are happy with the terms of the agreement.
'On the positive side, people who are appealing now and who are successful will get their reduction backdated to the last evaluation in 2010.'
Further information
Valuaton Office Agency
BUSINESS RATES: KEY FACTS
- Every property has a rateable value, assessed by the VOA, and this is used to calculate the amount of tax
- Business rates are calculated by the equation of rateable value multiplied by a national non-domestic multiplier, currently.458 in England
- Tax reliefs are available, such as the Small Business Rates Relief, in England, Wales and Scotland
- Targeted relief is also available for nurseries in Wales with rateable values below £12,000.
- Rights of appeal against the VOA assessments are available. Generally only one appeal is allowed every revaluation period.
- The current revaluation commenced in April 2010 and was due to last for five years up to 2013, but it is likely to continue until 2017.
Supplied by Storeys Edward Symmons
REASONS TO INSTRUCT A SURVEYOR
- A surveyor will inspect the premises prior to entering an appeal. This is essential because the VOA has the power to increase rating assessments if it thinks they are insufficient - for example, if it discovers floor areas are incorrect or the price adopted is too low
- Ratings surveyors are familiar with the legislation and regulations governing business rates and also the relevant case law and precedents
- They are experienced in putting forward reasoned cases to the VOA detailing why ratings should be reduced
- They can advise on the reliefs and exemptions available.