Business Rates are a form of tax paid for use of business premises, similar to paying council tax for use of residential property. This principle of work taxes originates back to Tudor times, with the current Business Rates system
stemming from 1990, the basic principle being that a business pays a tax to the local authority for use of business property space that is proportional to how valuable that space is to them.
So bigger and more in-demand locations will pay more, which although sounds fair in principle becomes complicated when you try and implement it. The government decided to re-value these amounts every 5 years to save more frequent re-assessments, with the last one technically being due in 2015 which is five years on from the last one in 2010.
Behind the scenes it is a huge task to re-value all business property in the UK at these times, hence the actual valuation date of being two years earlier than the implementation date. So the current values from 2010 are actually based upon valuations in 2008, which is just as the recession hit and values plummeted. Rates have therefore been kept at this higher level during hard economic periods, and deliberately delayed a further two years so that changes are happening from April 2017.
In short, you would expect this to be all good news, with values coming down by reflecting property rental values two years ago in 2015, which are generally lower than in 2008. But alas, the reality of such a complex exercise can bring winners and losers, and although some business will be benefiting from notable reductions in their business rates from April 2017, there are many that for whatever reason will be seeing increases as local and unique factors shape their own assessments.
To make matters worse, the nature of business has changed over this period, so as an example internet retailers like Amazon with large warehouse facilities have been seeing big savings compared to High Street retailers, to add to the fact that their property costs are lower anyway for just storage facilities rather than expensive retail locations.
Knowing the Business Rates Angles
Whether you’re a winner or loser with business rate changes, it’s still worth looking at the options to save these costs even further. They’re such a large property expenditure that may appear to be set in stone, however, small changes can provide huge benefits both now and on an ongoing basis.
Even though these costs are incurred by occupiers and tenants, it can still benefit an owning landlord in order to save any direct void costs and help make increase profitably for occupying tenant hopefully filter through to higher paid rents.
So here are 10 of the main Business Rates factors to bear in mind. These not only explain the basic principles of how they are calculated which will help you consider where fair changes need to happen, but practical pointers on what can be changed and requested:
1. Legitimate Exemptions
Firstly see what ‘business’ use is actually excluded from business rates liability
, one example being an element of working from home where it is still classed as primarily residential use and therefore the Council Tax regime (see how this still falls within residential tenancy legislation).
There are specific uses that are exempted with details here and including some agricultural buildings, those for the training and welfare of disabled persons, and registered religious places of worship and church halls.
Watch out for uses that change in a building, but the business rates acknowledgement of them has to catch up, or where a user has different buildings for the same use. So as an example, with some modern Christian Churches they may occupy a traditional Church building, which will probably be exempted, yet they may temporarily use, say, a coffee shop or general office or industrial property under normal business rates rules.
2. The Core ‘Ratable Value’
In short, the ‘market rent’ is determined to form the ‘ratable value’ for a business property. So if a shop’s rent is £10,000 pa, then the RV will also be around £10,000, and is the bedrock of how the end rates-liability is then shaped. These are determined by the Valuation Office Agency (VOA), a government body, which is basically the core open market rental value with a few tweaks.
This is the basic figure that the VOA then revalue every 5 years, and which can bring notable increases or decreases for businesses. You can find these online
for individual properties, including a breakdown of how the VOA have calculated this in terms of areas and rates per square metre.
3. The ‘Multiplier’
Your final rates bill is a proportion of your RV for the property. Practically, a ‘multiplier’ is therefore applied to your RV to come up with the end figure, normally just under half the RV. So for a RV of £10,000, you’re talking around £4,500 pa actual rates per year once the multiplier is applied.
This multiplier is agreed by the government each for, and based upon movements in inflation in the economy.
4. The Billing Authority
Once the basics are formed by the VOA, they inform your local Billing Authority to actually raise charges to you. You then liaise with your local authority to receive invoices and make payments to themselves.
With business rates income each year in the country being near £24 billion, this is a notable source of income that the government is allowing local authorities to benefit more from more and more. Although each authority collects money, it has traditionally all gone into one central government pot and then allocated to each authority.
From 2013 councils were allowed to keep 50% themselves over a certain level, with plans for them to have full control by 2020 in an effort for them to manage better locally. On one hand they may wish to increase efforts to raise monies, on another reduce to encourage business growth.
Another practical note is to check that the actual business rates invoices are correct, such as the amount, billing periods, and name on these. Although they are raised as one annual charge from April each year, they will often agree monthly payment plans.
5. Easing the Burden
The 5-year revaluations can cause big issues with charges, as per recent national-press uproars at the 2017 changes. Although a sudden sharp decrease will go well with business, a sudden increase can cripple them.
Therefore adjustments like transitional relief can help gently bring changes in, with current 2017 changes limiting increases to only 5% for up to £20,000, 12.5% for £20,000 to £100,000, and then 42.5% over £100,000.
6. Making Changes
As you look into the detail of your assessment and situation, there can be legitimate grounds to agree changes with the VOA. Some of these are ‘material changes’ which they are willing to process because of unusual circumstances that genuinely effect your ability to trade and so generate money to pay business rates. A classic example is if local roadworks have affected your trade so bad that the VOA will agree a reduction for the period of works.
Another example is if the property is being redeveloped so much that it is beyond repair to assume beneficial occupation and therefore can be beyond taking out of a rateable assessment.
You may also need to dig deeper into how they have assessed your property area, and any additional facilities and areas. Extra car park spaces can be included or separately assessed, there can be issues with connection to adjacent areas, and even the effect of plant and machinery for say heating and cooling on the premises.
7. Helpful Relief
There can be agreed relief and reductions to actual rates normally charged because of your unique situation. You can check out details here.
One popular example is Small Business Rates relief where rates under $12,000 are fully reduced, and a part reduction applied between $12,000 and $15,000 Ratable Value. A business will need to separately apply to the Billing Authority for this, and must take into account other business premises in the same way.
Another popular example is when a property becomes vacant, and a typical three months free-rates period. If a building is empty for less than it can still be a problem to pay full rates with no income.
8. Information Request
You often see a form from the VOA asking for information on your property. They look worse than what they are, basically a way in which the VOA can establish actual letting and ownership details of a property, as this is what will determine true market values and then the Ratable Value.
It may be worth contacting the VOA to discuss, and not worrying about completing all the information if you don’t have all to hand. You can receive lots of reminders as well, and threats of charges from not submitting them.
Fortunately there are grounds to appeal your rates
, formally through the VOA as the source of the charge. You can separately liaise with the local billing authority regarding any practical issue of billing, including application of any relief and savings.
The appeal process can be triggered online and progressed, but you need to carefully consider the process and timing for doing this. It may be worth a professional looking at it, as they will have expertise in the tweaks and changes that can be agreed with the VO. You also need to remember that other adjacent businesses may be in the same boat and are already pursuing an appeal or will join forces with you in one.
10. Lease Renewals
For business leases with the protection of the Landlord & Tenant Act 1954, the landlord can have legitimate grounds for refusing a tenant to have a lease renewed at the premises. Some of these grounds called ‘f’ and ‘g’, are unfair ones in that it has nothing to do with the behavior of the tenant, therefore they are entitled to compensation.
This level of compensation is based upon the RV of the property, and in actual fact double the RV for occupation over 14 years. The trigger date for looking at the RV is when the landlord first sends a hostile Section 25 notice, or replies to a tenant’s Section 26 notice – the RV on that date is the level of compensation.
Therefore in recent changes in 2017, it would be beneficial for a landlord to trigger matters before changes in April 2017 if the RV is know to increase, as this will mean a lower compensation pay out based upon the current lower RV figure. For larger properties and issues this can be worth considering for a both a landlord and tenant.
The Odds Are High
Business rates are huge property expenditure costs that may become even worse. Even a landlord who does not directly pay them needs to carefully consider them, in case they get lumbered with direct, and these high costs send a tenant under financially.
Therefore this is one area of property management that is worth seeking expertise in, hence the growth in a lot of rating advice services in the property market. They need to be carefully selected though, making sure that clear terms and fees are agreed.
Even with such advice in place, going through the above 10 factors will help you think out the box a little to begin asking the right questions and seeing the best angles. Sometimes you need to wade through the technical billing and charges, and other times you need to think of alternative ways to contest and manage effectively.