Costs: Part 3: Business Rates - It's complicated

Karen Faux
Monday, August 8, 2016

The Government’s plans for business rate relief for small companies garnered headlines, but with them come reforms making it harder to appeal. Karen Faux delves into the detail

If you didn’t know about this, you are not alone. Many providers have said they were not aware there was a capital funding bid process under way – 39 per cent of respondents to a recent Twitter poll – while we know of several local authorities who have only just contacted providers to ask if they are interested in putting together a bid, despite the fact that the deadline is 31 August.

The change to appeals is one aspect of a package of reforms which includes permanently raising rates relief for small businesses. Single-site businesses, with a rateable value (annual market rental value) of £12,000 or less, will be exempt from any charge from April 2017, which is a doubling of the current relief threshold. The Government claims this will take 600,000 small businesses out of the tax, but as yet it is unclear how many early years settings will benefit.

The Government is also introducing a sliding scale of rates relief available to businesses for 2017/18, with rateable values up to £15,000, making relief available to slightly larger premises. The Treasury says it will publish more information on the rates breakdown when the legislation is published in the autumn.

While revaluations of local rates have typically been carried out at five-year intervals, current rates were fixed in 2010. These vary between regions and are determined by calculating the properties' local rateable value with a rating multiplier set by the VOA. Values are based on floor space and other factors, such as whether a property is a new-build, which typically raises its value.

The updated rateable value list will be available on the VOA website next April. Meanwhile, VOA is in the process of updating the information and businesses are advised to check their draft rateable values on its website in October. They will then be in a position to let VOA know if any information is incorrect, before the local council uses it to calculate their bill.

Property company Christie and Co suggests that many settings will find that they have moved above the £12,000 rateable value since the last rates were set in 2010, negating any potential benefits.

Christie and Co senior valuer Adam Brooke says: ‘Ultimately, as with all these types of reforms, it will be a case of waiting to see just how many businesses actually benefit. What is certain is that small, sole traders will see their liability reduced.’

‘FULL AND FRANK’ APPEALS

From 2017 the Government is introducing a new system of ‘check, challenge and appeal’ for individual sites, which will mean that blanket appeals will no longer be viable.

According to Mr Brooke this represents a ‘sea change’ on the current system, which is likely to dramatically reduce the number of appeals that are made. He says, ‘Currently, occupiers and their agents can submit an appeal requesting their rateable value be reduced, stating it was incorrect without ever really considering if it was or not. The appeal would then be logged and discussions would take place. It could be that the discussion period resulted in the appeal being withdrawn as there was nothing wrong with the figure on the list.’

From 2017, when the new rateable values are released, appeals will have to be submitted with ‘full and frank’ reasoning as to why the assessment is incorrect, and are more likely to require the input of a professional agent from the start. ‘Agents managing the appeals will have to have done all the work at the front end, rather than in the middle, and will not appeal assessments if they believe there is nothing to reduce,’ he says.

Philip Clarkson, director at Lambert Smith Hampton, which partners with the National Day Nurseries Association (NDNA) to advise members on business rates, agrees that the number of appeals are now likely to drop in the future.

‘We will see small businesses taken out of liability and possibly many businesses deterred from launching appeals by the scale of information initially required,’ he says. ‘For advisors such as ourselves it will mean more work at the initial stage, and this could mean that we have to reconsider the way that we charge clients.

‘Rates appeals have historically been conducted on a no win, no fee basis, but this will be less viable under the new system.’

RENEWED CALL FOR CONCESSIONS

According to Claire Schofield, NDNA's director of membership, policy and communications, the 30-hour free childcare offer increases the need to step up pressure on the Government for major concessions.

It is clear that nursery businesses cannot compromise on their floor space. Standard space requirements are prescribed by Ofsted at 3.5 sq m for each child under two years old, for example, and capacity will need to increase to meet the expanded free offer.

Ms Schofield says, ‘Nurseries need space to operate but there is not a direct correlation between space and profitability.

‘Nurseries are unlike many other businesses, which do not require a high ratio of physical space to trade.’

She emphasises there needs to be a more strategic approach to business rates for the PVI sector. ‘We have heard [former] children's minister Sam Gyimah say that the sector is there to deliver early years education for the Government, and yet it is expected to pay rates in line with other businesses. Local authorities are providing funding to nurseries on the one hand and taxing with the other. It doesn't make sense.’

MANCHESTER EFFECT

Christie and Co carried out an analysis in Manchester to gauge how the Government's new rates relief scheme will impact early years businesses in the area.

Its research found 232 PVI nursery premises listed on the VOA website, with just over half – 126 of these – under the £12,000 threshold. This represents 50 per cent of the total stock.

Where businesses only occupy one property and are dependent upon the Uniform Business Rate (UBR), it is estimated they will be saving up to approximately £5,000 a year.

The UBR is the multiplier used by local councils when calculating business rates bills, where businesses pay a percentage of the rateable value. For example, this year (2016/17) the Standard UBR for England is 49.7 per cent. If a rateable value was £100,000, a business would pay £49,700 that year.

CASE STUDY: POLLY ANNA'S DAYCARE NURSERY, YORK

polly

Ken McArthur owns a day nursery in the village of Haxby, registered for 50 children. With three successful appeals behind him, he urges other nurseries to have the confidence to follow his example. However, he emphasises the need for professional advice and sound research to accurately establish the facts.

His most recent appeal against rates set by City of York Council was launched in September 2009 and resolved in 2012.

He says, ‘I was strongly convinced that the council had simply been in error in the way that areas of the premises – such as the kitchen and storeroom – had been valued, and we had been categorised as a new-build, which attracts a higher rateable value, when in fact we are in an existing property that had been altered.’

He believes it is important that nursery owners are aware of the possibility they could be wrongly assessed by their local council, particularly if they have carried out any work to increase their floor area in an existing building. ‘If alterations need council approval, this information may be automatically passed to the valuation officer and rates adjusted, but it may not reflect the way the area is used, and therefore categorised,’ says Mr McArthur.

He adds, ‘Anyone who is interested in appealing should do their research on the VOA website first, and find out what other local nurseries are paying. The next step is to find a reputable agent who can provide sound advice. Under the current regime, no fees should be paid to an agent up front as they receive commission out of the rebate that is paid back as a result of a successful appeal.’

FURTHER INFORMATION

The Valuation Office Agency, https://www.gov.uk/government/organisations/valuation-office-agency/about

The Government is introducing a new business rates appeals system in April 2017, https://www.gov.uk/guidance/how-to-appeal-your-rateable-value#proposed-reforms

NDNA's business rate fact sheet compiled in partnership with Lambert Smith Hampton, http://bit.ly/2aMuhzQ

Lambert Smith Hampton is holding a seminar on property costs in October (date to be confirmed), www.lsh.co.uk

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