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Business rates end of year review

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In this end of year update we consider the recently published Business Rates Review: technical consultation, which confirms the Government’s proposals regarding the steps needed to move to a three yearly revaluation cycle in England, and provides more detail on the proposed additional reliefs announced by the Chancellor in his Autumn Budget.

 

We also reflect on announcements made in the Scottish Budget last week and the progress of the Bill introduced to rule out Covid 19 MCC (Material Change of Circumstance) appeals resulting from the impact of Coronavirus in England and the £1.5 billion relief fund announced at the same time as the Bill.

 

UBR Multipliers for 2022/23

 

In our Autumn Budget update we confirmed that the Chancellor had announced a freeze in the UBR in England for the 2022/23 rate year reflecting a saving of £900m when compared to the normal inflationary increase. In a surprising departure from recent behaviour the Scottish Government announced in their Budget last week that there would be a modest increase in the UBR, although below the current level of inflation.

 

We await an update from the Welsh Government and in the absence of an announcement we are continuing to budget for a CPI linked increase from 53.5p to 55.1p.  All UBR updates and forecasts can be found here on our rating data website.  

More detail on the other Scottish Budget announcements is available here.

Business Rates Review: Technical Consultation

As trailed in the Government’s formal conclusion of its Fundamental Review of Business Rates a technical consultation has been issued covering four key areas:

 

– Measures to enable more frequent revaluations

– Improvement relief

– Support for Investment in green plant and machinery

– Other administrative changes

 

Our initial view is that the proposed measures to enable more frequent revaluations will massively ramp up the administrative burden requiring speedy reporting of property and lease changes and annual returns for all 2 million rated properties in England, even if there have been no changes or if no liability attaches to the property.

 

The system is already far too confusing and these new burdens, with the threat of fines, penalties and other sanctions for non-compliance raise the administrative burden and level of complexity significantly.

 

The consultation is divided into six separate chapters and whilst some measures will be brought in from the start of the 2023 Rating List others are not due to come into effect until 2026.

 

Included within the proposals are a number of fundamental changes which will potentially have a substantial impact on ratepayers with the only obvious benefit being the move to a three-yearly cycle.

From our initial review, we would draw your attention to a number of key issues:

 

Chapter 1: Provision of Information

 

The key focus here is the intention to move from the current position where there is no mandated requirement for ratepayers to notify either the VOA or billing authorities of changes which may have an impact on their business rates valuation to a new regime whereby ratepayers will be subject to:

 

“A duty to notify the VOA of changes to the occupier and property aspects that affect the assessment of the property for business rates” and a “Mandatory requirement to provide rent and lease information whenever a relevant change occurs as well as annually updated trade information used for properties valued for business rates purposes using turnover data.”

 

This information will need to be provided within 30 days of an event and will be subject to an annual confirmation, even if there are no changes to report, which must be completed online within 30 days of 31st March each year.

 

The current Forms of Return for cost information will be retained but the current 56-day time limit for completion will be reduced to 30 days in line with the new information requirements.

 

Chapter 2: Supporting Ratepayers to meet their obligations

 

The second chapter stays on the provision of information theme and promises a “single online destination for ratepayers or their agents to access and comply with the new obligations”.

 

The document refers to a “fair and proportionate” compliance regime which will provide “scope for lenience” where appropriate.

 

Whilst it is intended that the new duties would be introduced during 2023 Rating List much of this chapter is dedicated to deadlines, sanctions and penalties some of which are not expected to be introduced before 2026. Complex procedures are proposed with fines for failure to provide information and a new appeal process relating to penalties via the Valuation Tribunal for England.

 

We have commented before that the principle of requiring ratepayers to provide more information to the VOA is not unreasonable, if introduced as part of a package to facilitate a more responsive and accurate system, and if coupled with increased transparency from the VOA. These proposed obligations seem far too onerous on ratepayers and the 30-day time limits for information provision are unreasonable.

 

Whilst the sentiment is that the additional information will allow the VOA to maintain a fairer and more accurate rating list there are no corresponding time limits or additional obligations on the VOA to act speedily on information provided. For a truly fair and transparent system the VOA should be required to amend the assessment of any property change it has been advised about within the same 30 day limit under which businesses are to be required to operate.

 

We welcome the planned use of a single online portal for information provision but our experiences with the introduction of the VOA portal for Check Challenge Appeal back in 2017 do not fill us with confidence that an effective system will be smoothly delivered.

Chapter 3 “Appeals reform” and “Transparency”

 

It is intended to remove the check stage from the CCA process and introduce a 3-month window for submitting challenges. Whilst these would only apply from the 2026 rating list, they represent a significant change in the rights of ratepayers to challenge their assessments.

 

The VOA presently has 18 months to conclude the challenge stage, but despite the restriction for ratepayer challenges to the first 3 months following revaluation the intention is that the period for the VOA to determine a challenge will be extended to the life of the rating list – i.e. three years.

 

The Government intends to improve transparency in the system in a phased approach.

 

Phase 1: From 2023 improved guidance covering rating principles and valuation approach will be made available.

 

Phase 2: From 2026 ratepayers who have complied with all their information provision obligations will be able to access fuller analysis of the rental evidence used to set their assessment including an explanation of how that evidence has been used.

 

The Government have constantly stressed the need to reduce the number of appeals in the system in order to facilitate 3 yearly revaluations but we cannot see how the introduction of a three-month window for the submission of challenges will achieve this. Our concern here is that ratepayers will be forced into making protective challenges in order to comply with the short time frame and the suggestion that the time frame for the VOA to conclude challenges should be almost doubled is equally counter intuitive.

 

The consultation is also unclear on the interaction between the request for more detailed information under Phase 2 transparency and the three-month time window on challenges. This appears to create a pressure point on all stakeholders that could be a recipe for disaster.

There is also a section on Material Changes of Circumstance (MCC) where the proposal is that the government will legislate to clarify that factors arising from legislation, changes in licencing regimes or government guidance concerning how a property should be used cannot be in scope for MCC claims.

 

Chapter 4: Improvement Relief

 

The announcement of a new “Improvement Relief” from 2023 under which property improvements would be exempt from rating for one year was welcomed by business, but the details now revealed regarding scope and eligibility are concerning. Rather than a simple scheme the Government is proposing “qualifying works” and “occupation” conditions with a complicated set of criteria. Building owners that are not in occupation will not qualify and the VOA will need to certify the level of rateable value against which the relief will apply. It is proposed that the VOA will be able to withdraw or amend a certificate at its discretion but there is no reference to an appeal mechanism.

 

The proposals are that the qualifying works must result in a positive change in the rateable value and any works which result in no overall change or reduction due to “simultaneous value-suppressing activity”, for example demolition, will not be eligible.

 

The occupation requirement is intended to exclude landlords and property developers but also excludes a new occupier taking on a property from a previous occupier which had undertaken improvement works.

 

A one year exemption from rates increases relating to improvement works was in any event unlikely to be of sufficient duration to materially impact investment decisions and these new qualifying criteria and restriction could further negate the extent to which this new relief will have a beneficial impact.

Chapter 5: Green Measures

 

The exemption announced in the budget and referred to as Green Measures will apply from April 2023 to 2035 for eligible plant and machinery used in on site renewable energy generation and electricity storage. The examples in the consultation include rooftop solar panels, wind turbines, and electricity storage from any source where it is being used for electric vehicle charging points. The exemption is also extended to heat networks which are separately assessed and have their own rate bills.

 

This relief is welcomed however in our view this “Green” relief does not go far enough in supporting businesses as they strive to reach their ESG targets.

It is disappointing there is no clarity of the definition of low carbon source in qualifying heat networks and that the Government intends to exclude heat networks serving industrial processes. Such heat networks remains low carbon and unless the intention is to actively discourage all industrial processes the exclusion appears somewhat irrational.

Chapter 6 : Other administrative reforms

 

As suggested by the title this section covers more administrative reforms that are intended to resolve technical issues relating to the administration of the central list, operation of discretionary relief and the use of inflation indices in the calculation of the multiplier.

 

The consultation is open for a 12-week period with responses due by 22nd February 2022. We will be submitting our own response and working with trade and professional bodies on their submissions. Some of the changes proposed, particularly relating to the new duty to notify will place significant burdens on businesses and we would encourage you to submit your own response on some or all of the measures. We would be very happy to assist you in this process. Further consultation papers are expected in 2022 – one covering the possible introduction in England of an Online Sales Tax, proceeds from which would be used to fund a cut in the Uniform Business Rate for physical retail property. Later in the year the Government will consult regarding transitional relief arrangements to accompany the 2023 revaluation in England.

 

Covid 19 MCC Legislation

 

The legislation to rule out the possibility of rateable value reductions in England and Wales as a result of material changes of circumstances linked to Coronavirus The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill completed its Third Reading in the House of Lords last week with no amendments. The Bill now awaits Royal Assent at which point it will pass into law. The Government has still not issued any detail regarding the additional £1.5 billion relief fund for businesses which have not benefited from the rates holiday and we are hopeful that the guidance can now be issued without further delay. Even once the guidance has been issued, each billing authority will have to devise its own scheme for granting discretionary relief to ‘qualifying businesses’ together presumably with application procedures. We fear it could still be some months until support from this fund starts reaching deserving businesses.

 

As always, we are here to discuss any specific issues regarding your properties and will keep you informed of further developments regarding business rates across the UK.

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