Following on from my article about Business Rates in the LZ Newsletter, business rates are a tax on non-domestic property, but spare a thought for the recipients of the tax, namely the Government, and in particular the consequences that successful appeals can have on Local Authorities and local communities.
From a recipient perspective, business rates is an economic tax to collect. It’s hard to hide a property: occasionally, properties are left off the Rating List and forgotten, but generally all but a very few are rated. As I said in the LZ Newsletter article, business rates payable are calculated on poundage, an amount in the £, known as UBR (Uniform Business Rate) by multiplying the Rateable Value by the UBR. Whether the amount payable would be subject to any reliefs depends upon Government policy at the time.
Business rates contribute towards the funding of Local Government. Before April 2013, all business rates revenue was collected by Billing Authorities and all the money forwarded to Central Government for redistribution to the Local Authorities (“LA”) by way of formula grant. On 1 April 2013, per Local Government Finance Act 2012 and subsequent regulations, the Government introduced the business rates retention scheme, splitting the total business rate revenue into ‘central share’ and ‘local share’. LAs were given the power to keep up to half of the business rates revenue that each LA collects (local share). The central share is redistributed to LAs in the form of revenue support grant in the same way as formula grant. Local share gives LAs an incentive to go for growth and encourage enterprise and job creation. The idea is that economic activity can increase the amount and quality of commercial property which means that the total amount of money raised from business rates would also grow. Of course, it’s not as simple as that, there are risks, but you get the picture.
As well as the business rates retention scheme, the Government introduced a voluntary scheme for LAs within proximity to one another (usually in the same county) allowing the pooling of business rates. Pooling enables those LAs that do not have much commercial property within their boundaries to have more money than might otherwise be available for funding local services.
So far so good. Where both the retention scheme and pooling run into difficulty is over the issue of successful appeals against Rateable Value. At the start of a Revaluation period, the current revaluation commenced 1 April 2010, the ratepayer pays the business rates from day one until, assuming an appeal is made, the processing of a successful appeal reducing the Rateable Value is completed by the Billing Authority, whereupon the overpayment is refunded (or credited) to the ratepayer’s account). The appeal procedure can take months, sometimes years, which means that until the outcome is known the LAs cannot be sure just how money they have available for funding local services.
LAs budget their expenditure funding on local services according to the needs of each LA department and much expenditure is incurred as it arises. Since the LA has no way of knowing in advance how many appeals would be made or how successful each appeal would be, and since Central Government is intent upon public sector spending cuts – austerity – even just a few substantial reductions in Rateable Value could have disproportionate consequences on pooling. LAs reason that refunds in rates payable before the retention scheme and pooling were introduced should not be met by them, but Central Government is resisting.
Beyond the popular types of commercial property are non-domestic hereditaments upon which RVs and business rates payable are substantial: for example, airports, power stations, theatres, cinemas, stadium, and such like. A reduction in Rateable Value can have dire consequences for LA pooling. In Gloucestershire, for example, where within its boundaries Tewkesbury BC, a member of the county pool, has some private-sector infrastructure telecommunication installations, a reduction in RV backdated to 2010 will necessitate the council making a refund of more than £1,500,000 to the ratepayer company and a repayment of more than £1M of transitional relief to the Government.
Earlier this year, the Government launched a consultation review for the reform of the rating system. Whatever the outcome, it is bound to take some time for changes to be introduced. In the meantime, the 2017 Revaluation has been announced, with an antecedent valuation date 1 April 2015. Whether the VOA will have enough staff to update its records in time, or continue to base rating valuations on what for many properties could be outdated information remains to be seen.
It is all very well focusing on what I describe as ‘the superficial’ but, essentially, the challenge is to overcome the ‘them’ and ‘us’ approach to taxation. In my opinion, it should not be the private sector vs the public sector, but how when the pubic sector is funded with the help of rates revenue from the private sector can the private sector be assured of getting good value for money and what could it do to help. One solution, which is probably impossible without a structural shift in social attitude, would be to eradicate political ideology from LA decision-making so that no matter which political party is in Government the LAs follow suit. The creation of an irresistible force going in the same direction would be a socio-economic triumph. I have long reasoned that the snag with the UK is that it cannot make up its mind whether to be capitalist or socialist so is inclined towards a bit of both, a compromise approach which creates friction in relationship and is tantamount to driving a car with the brake on.
Suggestions I’ve put to the Government review on the reform of the rating system are about improving the existing system so that the tax-payer can benefit.
1) A cursory glance at the VOA’s valuation figures in the rating List invariably shows that the RV itself has been rounded down, often substantially. Whether the intention is to reduce appeals because the adopted RV is already lower than it should be doesn’t seem to deter appeal. I should’ve thought it better for the RV to be the same figure as the valuation, not rounded down. The rates payable would be based on the higher valued RV. The lost amount of business rates on every £500 or even £250 reduction in RV from rounding down soon adds up, given the size of the List.
2) During discussion with the VOA, it is not unusual for the VOA to suggest the appeal be withdrawn. not because the entry in the List is correct, but that it is already too low. Rather than take the opportunity to increase the RV – and hence the potential rates payable – the VOA comes over as doing the ratepayer or ratepayer’s surveyor a favour which rather makes a mockery of the system. A Rateable Value is either correct or it is not: for a ratepayer to be let off because the appellant or appellant’s surveyor has made the appeal regardless of the merits of the case is not acceptable, but I suspect a widespread lax practice.
3) The rating description of the premises and the VOA’s valuation scheme for that particular category of premises can often be wrong. It amazes me that there is apparently no joined-up thinking between a LA planning department and the VOA. I first encountered the impact of premises description and RV valuation scheme when dealing with a property with substantial retail and trade-counter use where the RV description was light industrial. I spoken to a senior VO and was told that simply updating the description and using a different valuation scheme would have resulted in a higher RV tone and RV. The problem he suggested was VOA staffing levels, not enough people to visit premises to check. He said that where description updating had been done as an experiment, the ratepayers had been shocked that the VOA had spotted and corrected the inconsistency. That was not an isolated incident, frequently I note that the rating description of the premises does not tally with the occupational use at the antecedent valuation date. I appreciate VOA staffing numbers may be under comfortable levels, but surely there can be no excuse for working off outdated information, particularly since the consequence rubs off on business rates revenue. All it needs (which I appreciate is easier than done) is a complete re-referencing (re-measuring/ inspection) of all non-domestic hereditaments on the rating list to ensure that the rating areas and occupation usage are correct.
It should be a legal requirement where planning permission for change of use and/or any structural alterations is obtained for ratepayer to inform the VOA of the change. Long ago, appeals could be made by anyone which, in this era of social media and revenge-taking, might noways be taking things too far.
I realise my suggestions might not go down well in some quarters, but the aim is to ensure that the VOA’s information is accurate, so that the required sum from rating could be obtained without introducing changes that for the most part give the impression of avoiding the real issue, which is that the VOA is not doing its job as well as it could or should.