Business Rates >

If you occupy business premises, you are almost certainly liable to pay business rates. These are a tax collected by the district or borough council (the "billing authority"). The revenue is passed to Government for redistribution back to local authorities as part of central funding of local services. Business rates are based on the rateable value of the property, which reflects its rental value. However the rateable value can be challenged. It may change in any case if the premises are altered or if its value is affected by changes in its locality. And some limited classes of property are exempt from business rates altogether. Rating is a minefield where real expertise is needed to chart a way through. Gerald Eve know the system and our knowledge may be able to save you money. These pages provide an outline of the main features of the rating system in England and Wales - somewhat different systems apply in Scotland and Northern Ireland.

The Valuation Office Agency (VO) of HMRC assesses the rateable value of all relevant properties in England and Wales.

Every 5 years the VO publishes a new "rating list" for each billing authority, which shows the rateable values of all properties in its area. It includes the address and description of each property as well as the date from which any alteration to the rating assessment takes effect. The rating list can be seen at the office of the local VO (and viewed online at www.voa.gov.uk) and a copy is also available at the offices of the billing authority.

Most business premises are assessed for rates and have a rateable value. Living accommodation is generally treated as domestic property and is subject to the council tax instead. In some cases, business premises and living accommodation are in the same property and occupied by the same person. In these cases the property is known as a "composite". Typical examples of composite properties are a shop with living accommodation or a factory with a caretaker's house or flat. In these cases, special rules apply. The general principle is that business rates are payable on the business accommodation and the council tax is payable on the living accommodation.

Apart from living accommodation, there are several types of property that are exempt from business rates, including agricultural land and buildings, fish farms and most churches.

There are two main factors: the rateable value of the property and the level of the uniform business rate (UBR), which is expressed as a fraction of a pound. Multiply the one by the other and in theory you would have the annual amount of business rates. But there is a complication because increases (or decreases) in business rates may be phased in over a period and the amount actually payable could therefore be below or above the figure the simple multiplication produces. These "transitional arrangements" are mentioned later.

The rateable value of a property is broadly its open market rental value - assuming the tenant insures the premises and carries out all the repairs. There is a fixed date at which the rental value is assessed which is usually two years before each rating list comes into force. The most recent revaluation was effective from 1st April 2010. It follows, therefore, that rental values are taken at market conditions prevailing at 1st April 2008.

Although the rating valuation is based on the rental value as at 1st April 2008, the physical state of the property and its locality is considered as at 1st April 2010 or at the date of any subsequent alterations.

Rating valuations take place countrywide every five years. The rateable value of a property will therefore usually change every five years. It will also change if the ratepayer lodges a successful appeal or if its value is affected between revaluations due to physical changes to the property or its locality.

The UBR is the multiplier that is applied to the rateable value to calculate the rates due. Each year, except in the year of a rating revaluation, the UBR increases in line with inflation. For the rating year 2011/12, which runs from 1 April to 31 March, the UBR is £0.433 in England. Thus, if you occupy premises in England with a 2010 rateable value of £50,000, you calculate your theoretical business rates liability as follows:

£50,000 x £0.433 = rates payable of £21,650.

But this is not necessarily the end of the story. For 2009/10, the Government introduced a rates deferral scheme, which enabled ratepayers to apply to defer 3% of their 2009/10 liability until 2010/11 and 2011/12. Those businesses will be paying back the deferred amount in equal instalments through 2010/11 and 2011/12.

The amount payable may be affected by a phasing scheme known as "transitional arrangements", which is designed to spread the impact of a large increase (or decrease) in business rates following the five yearly revaluations.

The rules governing the transitional arrangements are complex but broadly, transition was introduced to phase in some of the largest changes in business rates arising from revaluation. The idea was to limit the amount by which rates payable could rise in any single year. Because the rules are so complex it is not sensible to go into too much detail here so if you require more information please contact us.

The transitional arrangements, whether upwards or downwards, do not apply to new properties or to extensions and alterations which increase the value of a property and which are completed after 1st April 2010.

From April 2010, there are no transitional arrangements in either Scotland or Wales.

You will receive a rate demand from the appropriate billing authority around the 1st April each year. Normally you will pay in ten equal monthly instalments.

If the property is newly built or the rateable value of an existing property is altered during the rate year, you will receive an amended demand requesting payment for each remaining monthly instalment.

Business rates are payable by the occupier of the property. If you are a tenant, the lease will sometimes state that your rent is inclusive of rates. In this case the landlord takes responsibility for the payments. Where the property is empty, it is the person entitled to possession of the property who is liable. Depending on the circumstances, this could be the freeholder, the leaseholder or some other person.

Generally the answer is yes, however there are some concessions. In England and Wales there is no liability for rates for the first three months a property is vacant, or for the first six months for industrial and warehouse property. After that, rates are payable at the full occupied rate. In Scotland, there is no liability for the first three months that a property is vacant after which rates are charged at 50% of the occupied rate. No rates are payable for vacant factories and warehouses in Scotland.

Empty rates are not payable on vacant storage land, listed buildings, premises in England and Wales with a rateable value below £2,600 (below £18,000 for the 2010/11 rating year) and empty properties of companies in administration or liquidation.

The billing authority has discretionary powers to grant relief where a property is temporarily only partly occupied. If relief is granted, the rateable value will be apportioned by the valuation officer and full rates will be payable on the part that is occupied and empty rates will apply to the unoccupied parts of the property. This discretionary relief can last for up to three months (six months for part vacant factories and warehouses).

Small businesses in England can apply for rates relief from 1 April 2010 so long as the aggregate RVs of their main and any ancillary properties are below £18,000 (below £25,500 in London). Only one of a business’s properties may have an assessment greater than RV £2,600 in order to qualify for relief on the main property. Relief is available at 50% for assessments less than £6,000 and the amount of relief reduces on a sliding scale to nil at RV £12,000. Qualifying small businesses with a main property RV above £12,000 but below £18,000 (£25,500 in London) will need to apply to their local authority for their bill to be calculated using the lower UBR (42.6p in 2011/12).

For the period from 1^st October 2010 until 30^th September 2012, the government has enhanced the small business rate relief scheme. No rates are payable by qualifying businesses if the RV is below £6,000 with the relief reducing on a sliding scale from 100% at RV £6,000 to nil at RV £12,000.

Charities and Community Amateur Sports Clubs receive 80% mandatory relief. Non-profit-making organisations may apply to the billing authority for discretionary relief (up to 100%). This application must usually be renewed each year.

A range of other reliefs are available for certain rural businesses. Gerald Eve can advise you about them.

Occupiers, owners and their agents may lodge an appeal against their rateable value. This is usually referred to as "making a proposal to alter the rating list". The appeal is sent to the local valuation officer and may normally be made at any time. However, certain appeals have to be made within fixed time limits.

We recommend that you should consult us about your business rates liability at an early stage. We will help you to decide whether it is worth challenging your rateable value. You may appeal against your rateable value on a range of grounds. For example:

• the rateable value is incorrect
• an assessment alteration made by the Valuation Officer is incorrect
• there has been a material change in circumstances. Perhaps a building has been demolished, or there have been changes to the locality which affect the value of the premises in question.

The VO will consider the appeal and, unless he or she considers it to be invalid, the VO will acknowledge your proposal as a matter of course. He will advise in writing of the timescale in which the matter will come forward to be discussed. It usually takes some months, or even years, before the appeal is discussed but the VO attempts to clear cases as quickly as possible. If you are suffering hardship as a result of delay in concluding negotiations, you should bring this to our attention, as it may be possible for the appeal to be 'fast tracked'. 

Most appeals are settled by agreement, but if this is not possible, they are referred to the Valuation Tribunal. Where this happens we will receive notification of the date and time of the valuation tribunal hearing. There are certain procedural steps that must be complied with in the period prior to a tribunal hearing with a fixed timetable. These relate to the provision of evidence and the lodging of formal statements of case. The tribunal comprises three lay members. We will present evidence on your behalf and the valuation officer on the other side will offer his valuation and the tribunal decides the level of rateable value. At this stage the procedure does not involve court costs, but you will have to pay your professional adviser.

Any party who appears at the valuation tribunal hearing and who is dissatisfied with the decision may appeal further to the Upper Tribunal (Lands Chamber). Costs begin to be incurred when appeals are lodged at this level. Yet further appeals to the Court of Appeal may be made on a point of law only.

If the rateable value is reduced, the ratepayer should qualify for a rate refund. This will either be sent direct to you as the ratepayer; or it will be credited to the next rate demand; or the existing monthly instalments will be reduced. Some billing authorities require written authorisation from the ratepayer before they make the refund. We usually recommend clients seek a refund rather than a credit.

You will normally receive interest on the amount overpaid, provided that rate payments have been made on time and are up to date. The rate of interest varies each year.

Unfortunately, rating legislation is very complex. Pitfalls abound and are too numerous to list here. In particular, beware of unqualified "advisers" or "consultants" who claim they can achieve a reduction in your business rates, but may simply take your money without delivering anything. Read the terms of the proposed contract with your adviser carefully and ensure that you understand what you are being asked to commit yourself to. Gerald Eve complies with the Rating Consultancy Code of Practice available at www.rics.org

In Scotland, instead of the Valuation Office Agency, there are 14 independent Assessors whose responsibility it is to assess the rateable values of all properties and to maintain the Valuation Roll. Assessments can be viewed online at www.saa.gov.uk.

Local Government Finance is a devolved subject under the control of the Scottish Parliament but the rating system is similar to that in England and Wales. In recent years the Scottish UBR has been harmonised with that in England at the same level. Ratepayers whose aggregate assessments in Scotland are £18,000 or less qualify for a Small Business Bonus Scheme.

Historically Scotland has had its own legal system and, while in recent years new legislation has mirrored that of England and Wales, there still remain fundamental differences in rating matters. It is important therefore that your Scottish rating advisors are experienced in these matters and Gerald Eve's Glasgow office would be happy to advise you on any rating matter in Scotland.

A Business Improvement District (BID) is a partnership between a local authority and the local business community to develop projects and services that will benefit the business environment within the boundary of a clearly defined commercial area. There are over 100 BIDs currently, with a cost implication for all property occupiers in a BID area. BID levies are normally based upon a property’s rateable value and many are charged at between 1% and 2% of the assessment.

These are supplements available to some authorities in England and Wales which they can levy to specifically fund local economic development, such as infrastructure projects.

Contact Gerald Eve to talk through any issues you may have. You will find that we offer sound, value-for-money advice, we aim to save our clients money and take the hassle of rating away from you.