Business Rates Update

Government announces Business Rates Review

Earlier this year the Government announced its proposed "Business rates administration review" to take effect in 2017.

Business rates are a tax based on property values which are reviewed every five years, although in a change the Government described as "backing business" by "helping them compete", the next revaluation programmed for 2015 was postponed until 2017. How continuing to charge business rates based upon 2008 values, when they were at their pre-recession peak, is intended to support businesses was and still is bewildering.

In England alone, business rates generate about £23 billion a year, and goes towards funding services provided by local government. Most businesses would argue that they derive no direct benefit from business rates and would point to the fact that nor do they have any vote as to the running of its local authority.

This latest review will consider the way in which the business rates system in England is administered by the Valuation Office (an agency of HMRC) and local authorities post 2017, with a view to “strengthening its responsiveness to changes in property values and its simplicity and transparency to business ratepayers”.

The review will include consideration of:

  • the administration of billing and collection by local authorities, including the application of reliefs and exemptions; and of valuation by the Valuation Office (VO), including the scope for improvements in communication and the exchange of information between ratepayers and public bodies
  • the circumstances under which liability can be backdated
  • the changes to valuation methods, consistent with the principle that business rates are based on rental property values and that the rates retention system rewards local government for growth in values
  • the frequency of revaluations to enable tax assessments to be based on up to date property values

The Government’s terms of reference makes clear that “Any changes will need to maintain the aggregate tax yield from which to fund local services, preserve the same level of financial autonomy to authorities and the local incentives to promote growth that were delivered through the implementation of the business rates retention scheme”.

Overloaded rates appeal system to be reformed

In an attempt to provide councils with greater financial certainty, the Government has unveiled reforms relating to the way in which business rate appeals are processed.

Due to a lack of information available about appeals in their local area, councils struggle to balance their books.

In response, the Government has set out plans for the VO to set out more detail for rate payers about how their rateable value has been decided. Businesses and surveyors submitting an appeal will also be required to set out the details of why they believe a rateable value is incorrect.

In particular, the reforms will seek to achieve greater transparency for initial rating decisions and measures to prevent speculative appeals from businesses and specialist agents.

According to figures from the Valuation Tribunal Service (VTS) 130,000 cases were listed for hearings between April 2013 and March 2014 of which, over 20,000 remain outstanding. Now four years into the current valuation list, the Government has set a target for the VO to clear 170,000 appeals by July 2015.

The Department for Communities and Local Government (DCLG) has also set out proposals to clarify the roles of the VO, to which appeals are made, and the Valuation Tribunal, which ultimately decides on appeals if they have not been resolved by agreement with the VO.

In order to deter speculative appeals the appeal process will no longer involve a simple form. Instead, a detailed submission setting out the reasons for the appeal with supporting factual details and comparable evidence will be required; else the appeal will be rejected as invalid. It is proposed that the VO will consider the appeal and make a determination within 12 months. If it fails to do so or its determination is not considered reasonable, a further appeal may be made within two months to the Valuation Tribunal. Appeals will therefore need to be more thoroughly considered and prepared to a much greater degree of detail before being made.

It is planned that the changes will be introduced by October 2014 and are expected to cost £4m to implement but anticipated to result in 20,000 fewer appeals a year which it is estimated will save the VO at least £5m a year.

Being introduced during the life of a valuation list, rather than at commencement, will effectively create a two tier appeal system within one valuation list which will place any party making an appeal after the changes at a disadvantage, with the likelihood of delays and additional costs in making the appeal.

Rating appeal specialists warned the VO and the VTS that the procedures adopted in 2010 would not work and there are reservations that these latest changes will have the desired effect. Consultations have taken place and details of the proposed legislation are awaited.

If businesses have not yet had their business rates assessments checked then they should do so now before the appeal process becomes more complicated and more expensive.

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Steven Murray details