Business rates is a tax on the occupation – or the right to occupy – commercial property. It’s the oldest official form of taxation in the UK, dating back to 1601 and pre-dating income tax by almost 200 years. Yet it’s never been less popular with taxpayers – and for good reason.
Every commercial property is given a rateable value by the Valuation Office Agency (VOA) or the Scottish Assessor. This is supposed to represent the open market rental value at a date set by Government, assuming the property is vacant and available to be let on that date (even if it’s not). Therein lies the 1st problem as any property professional will tell you that valuation is an art, not a science. The VOA has to value over 2 million properties each time there is a new revaluation – it’s no wonder the quality of their artistic ability is so often questioned.
Once a rateable value has been set (usually 5 yearly but the last one was in 2017), government sets the annual multiplier to convert the rateable value into the amount payable to the Council. This is where the 2nd problem lies. In 1990, the annual multiplier was 34.8p, or 34.8% of a rateable value. In 2023, it has risen to between 49.9p and 54.6p, depending on where a property is and how large it is. Clearly too much is being expected of the business rates system.
There is no right to contest the annual multiplier, but there is a right to appeal against the rateable value. This is where the 3rd problem arises in that the increase in ‘ambulance chasing’ rates advisors in the early 2000’s led to a significant increase in appeals being made. Over the course of the 2010 Rating List, almost 1.1m appeals were made – of which 70% were withdrawn or otherwise struck out. The appeal system was being abused and the VOA could not cope with the volume.
In came a new appeal system called ‘Check, Challenge, Appeal’ to save the day. By making the appeal system more complicated, the government hoped to put many ratepayers off pursuing appeals, but it is now virtually impossible for an unrepresented ratepayer to navigate through, often leaving the ratepayer with no way to arrive at a fair level of rates to pay.
After each revaluation, there are always winners and losers – those who see their rateable values reduce, and others who see them increase. From 1st April 2023, the logistics sector has been the biggest ‘loser’ from a business rates perspective, with average rateable values for warehouses increasing by 27%. The retail sector saw an average 10% drop in rateable values.
The leisure sector has seen very mixed fortunes since the previous revaluation – rateable values for hotels are down on average by 30%, but caravan parks are up by 16%. Pubs are down by 17%, but drive thru restaurants are up by 14%. Theme parks are down by 12%, but garden centres are up by 8%. Many assessments will be correct, or at least reasonable.
Many, however, will be wrong, whether too low or too high. This tax is at its least popular level, yet the need to obtain professional advice to deal with it is at its highest level.