Business rates since 2017 – a lack of appeal
Business rates are a tax on occupiers of non-residential property. They are an important source of revenue for government (increasingly, since the introduction of the business rates retention scheme in 2013-14, for local government). According to official forecasts, income from business rates will be nearly £25 billion for each of the years 2018-19 and 2019-20.i
Rates are calculated on the basis of a rateable value (RV) set by the Valuation Office Agency (VOA). The RV is meant to reflect the open-market annual rent for the property. The amount of rates payable is calculated by applying the national multiplier (currently, 50.4 pence (or 49.1 pence for small businesses) in England and Wales) to the RV. For example, a property in England with an RV of £100,000 would have a basic business rates liability of £50,400 (£100,000 x £0.504). Certain reliefs and exemptions may then be applied to reduce the ratepayer’s liability.ii
The revaluation that took effect on 1 April 2017 saw a 9.6% increase in the RV of commercial property in England driven largely by a 23.7% increase in London.iii This exposes an increasing north-south divide or, more accurately, a London-England divide. The Institute for Fiscal Studies has projected that revenue from London would increase by around £700 million whilst revenue from the rest of the country would fall by £1.2 billion as a result of the revaluation (the central rating list has also seen a large increase in its total RV equivalent to the £500 million difference).iv
The headline figures mask some very substantial changes to bills received by individual businesses and property owners, especially in London. According to a report for the Federation of Small Businesses, the increases to bills have the potential to reduce employment and stifle investment, if not to threaten the survival of businesses.v The effect of the revaluation has come at a time when businesses already face a host of other challenges, such as the growth of online retailing and other technological innovation, the increase in the National Living Wage, a reduction in office space caused by the extension of permitted development rights allowing easier conversion of office to residential, and the uncertainty around Brexit.
It is not unusual for a revaluation to lead to a degree of inequity between individual businesses. Indeed, the government anticipates a flurry of successful appeals following a revaluation and makes an upwards adjustment to the national multiplier to compensate.vi What is perhaps different on this occasion is the level of criticism and dissatisfaction. There has also been a two-year delay in implementing the revaluation, which was originally due to take place in 2015. This has made the changes more pronounced than they might otherwise have been. Another factor may be the introduction of the new “Check, Challenge, Appeal” process in 2017, which has replaced the old appeals process.
The start of the new appeals process involves checking and confirming online that the VOA has the correct information about the property. If the ratepayer still disagrees with the valuation after the check process has been completed, a challenge can be submitted within 4 months of the VOA’s decision (or within 12 months of the check submission if no decision has been made). It is important to submit all of the requisite information, together with supporting evidence, with the proposal because otherwise it will be rejected as incomplete and the opportunity to continue with the appeal may be lost. If the ratepayer does not agree with the VOA’s decision at the challenge stage, an appeal may be lodged with the Valuation Tribunal (VT) within 4 months of the date of the decision (or within 18 months of the challenge submission if no decision has been made).
The latest VOA statisticsvii show that 82,400 checks have been registered in England in the two years since the 2017 valuation came into effect, which represents 4.26% of the 1.93 million rateable properties in England.viii This compares to 387,470 challenges registered within two years of the 2010 valuation coming into effect. Out of the checks registered so far, 71,760 have been resolved with 48,640 being agreed or partially agreed (a success rate of nearly 68%).
There have been 12,930 challenges registered during the lifetime of the 2017 list of which 4,740 have been resolved with a success rate of nearly 60%. Interestingly, 1,220 of the proposals registered at the challenge stage (nearly 10% of the total) are shown as incomplete because they did not comply with the legislative requirements, which possibly suggests that the success rate might be even higher. The success rates of checks and challenges in relation to the 2017 list is much higher than the mere 29% of challenges that resulted in a change to the 2010 list during its lifetime.
There have been 70 appeals to the VT in the 2 years since the start of the 2017 rating list of which half have been cleared. This compares to 1.05 million appeals in relation to the 2010 rating list since 1 April 2010 of which 987,000 have been cleared.ix It follows of course from the low number of check and challenge submissions that the number of VT appeals will be low. On the other hand, the 2017 amendments to the regulations governing appeals introduced provisions to the effect that (i) the VT should only order a change to the RV where “the valuation for the hereditament is not reasonable”, and (ii) new evidence can only be introduced at appeal by agreement or if it was not available at the challenge stage. These changes may have deterred ratepayers at the appeal stage or earlier.
Responding to calls from high street retailers in particular, the Treasury Committee launched an inquiry on 1 February 2019 into the impact of business rates on business. The Chief Executive of the VOA will be appearing before the Treasury Committee on 21 June 2019.
The outcome of the inquiry will be awaited but it is difficult not to conclude that the widespread dismay with the impact of non-domestic rates on business since the delayed 2017 revaluation, which has led to both government and opposition parties considering alternative forms of taxation to replace them, has been exacerbated not only by the magnitude of the increases faced by some businesses but also by the actual or perceived shortcomings of the new appeals process.
i Ministry of Housing, Communities & Local Government, Local Government Finance, Statistical Release, 13 February 2019 – National non-domestic rates collected by councils in England: forecast for 2019 to 2020
ii Mark Sandford, House of Commons Library, Briefing Paper Number 06247, 19 December 2018 – Business rates
iii VOA, Statistical Release, 6 October 2016 – Non-domestic Rating: Change in Rateable Value of Rating Lists, England and Wales, 2017 Revaluation
iv David Phillips, Institute for Fiscal Studies, 30 September 2016 – Business rates revaluation reveals growing gap between London and the North (Phillips)
v Ramidus Consulting for the Federation of Small Businesses and Camden Town Unlimited, September 2017 – The Business Rates Revaluation in London: The 2017 Business Rates Revaluation and its Impact on London’s Micro, Small and Medium sized business community
vii Non-domestic rating: challenges and changes, 2017 and 2010 rating lists, March 2019 (experimental) available at https://www.gov.uk/government/statistics/non-domestic-rating-challenges-and-changes-2017-and-2010-rating-lists-march-2019-experimental
viii Non-domestic rating: stock of properties, 2018 available at https://www.gov.uk/government/statistics/non-domestic-rating-stock-of-properties-2018
ix Valuation Tribunal Service Statistical Release, Non-Domestic Rating and Council Tax Appeals (England) 2018-19 available at https://www.valuationtribunal.gov.uk/wp-content/uploads/2019/05/VTS-Stats-Release-Jan-Mar-19.pdf
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