As you hunt through your balance sheet looking for ‘trimming opportunities’, in an attempt to deal with rising costs and diminishing profits, you might wonder if ‘Business Rates’ savings could be achieved. The answer is a qualified yes – qualified because challenging a Rates demand requires the advocacy skills of a barrister and the analytical prowess of an investment analyst. Jonathan Young, business rates specialist at property consultancy Matthews & Goodman, explains all about business rates.
The following should help you answer that simple question “Can I reduce my Business Rates bill?”
Why do I have to pay Business Rates?
Business Rates are a central government tax levied on most non-domestic properties such as shops, offices, warehouses and hospitality/leisure premises.
How are Business rates calculated?
It is based on the Rateable Value (RV) of the property – the government sets a multiplier, (which is a pence-in-the-pound value), which is then applied to the RV.
In England and Wales, the RV is based on the rental value of the property in the open market, as at the fixed date of 1 April 2015 for the current Rating List – an estimate calculated by the Valuation Office Agency (VOA). In Scotland, the Scottish assessor sets the rateable value. The next national revaluation is due to come in from April next year. In England and Wales assessments will be based on rental value as at 1 April 2021
Local authorities collect the Business Rates due (in their area), on behalf of central government. A proportion of these funds are then redistributed back to local authorities – the exact amount is determined by a population-based formula.
Can Business Rates be challenged?
Every Business Rates payer has the right to challenge a Rates demand received. In England, the Business Rates appeal process is known as ‘Check, Challenge, Appeal’.
All ‘Checks’ and ‘Challenges’ are dealt with by the Valuation Office Agency (VOA), via its online service. ‘Appeals’ are referred to a Valuation Tribunal.The process is technical and can be time consuming, which is why most Ratepayers appoint Business Rates specialists to manage the process on their behalf.
Are Business Rates fixed forever?
There are a number of different circumstances which would allow a Rate payer to challenge their Rates demands. These include:
- The original valuation, conducted by the VOA, was incorrect (were the ‘comparables’ used – to establish rental value – correct)
- The VOA has failed to split the property correctly – between various companies (‘listings’) in a multi-let building
- The size (square footage) of the premises being valued are incorrect
- Material changes to the property are not reflected in VOA’s valuation
- New developments in the area could affect the rental value – and therefore its Rates assessment
- The VOA’s records do not accurately reflect the age and/or condition of the premises
- There has been a change of use of the property
- If the premises, or part of the premises is empty, mothballing it could result in a reduction in Business Rates demands
- Refurbishing all, or part of the premises, can provide the opportunity to mitigate Rates demands as it would be classified as a ‘disturbance’ to the business (eg the redevelopment or refurbishment of a building and/or area in the nearby proximity is a grounds to Challenge the VOA). The reduction would be applied for the duration of the disturbance
- Letting part or all of the premises to a charity can also reduce Business Rates as charities and not-for-profit organisations can apply for Charitable Rate Relief – equivalent to an 80% reduction in the Rates demand.
This is an indicative (but not comprehensive) list of potential ‘cost savings’.
What is the penalty for non-payment of Business Rates?
Failure to settle the Business Rates demand in full, or failing to address the subsequent reminders within seven days, will result in the council demanding an immediate settlement of the outstanding amount in full.
Failure to comply with this request, could result in the council starting legal proceedings and applying to the Magistrates’ Court for a liability order.However, it is worth noting that the payment of Business Rates can be spread over 10-12 months – in effect, a 10-12 month interest free loan.
A final word of counsel: beware of overzealous Business Rates advisors and companies who make tantalising claims about securing eye-watering reductions in Business Rates liabilities. Make sure you appoint a RICS registered adviser, with a proven reputation and track record.
