Never has property tax been so complicated and contentious as business rates are today.
Whether you are acquiring, redeveloping, investing, asset/property managing or occupying you will have an interest in business rates. They will and should affect many strategic decisions you will make.
The 2017 Rating List is now just over a year old and the new “Check, Challenge, Appeal (CCA) system to challenge rateable values is experiencing both technological and process “teething troubles” – you could say “chronic root canal pain”.
Most businesses want to legitimately minimise their tax and business rates are no exception. Below are a few topical comments on how this can be achieved and a quick update on forthcoming changes to the system.
Challenging the level of rateable value
To date there have been significantly fewer challenges to the 2017 rating list than previous lists. Has the Valuation Office valued almost every property in England correctly leading to complete contentment by ratepayers? Sadly no. What should be a transparent and simple system, to ensure rateable values have been based on accurate rental and physical information, the Government forged ahead to implement a process which was doomed to fail business from the start – CCA (Check Challenge Appeal).
Despite widespread criticism of the changes to the English rating appeal system and the IT issues associated with the Valuation Office digital platform, the 3 stages of check, challenge, appeal each present the ratepayer or agent with unnecessary obstacles. However, from our knowledge of various categories and locations of property, we can see already that there are inaccuracies in the rating list that should be challenged by ratepayers. CCA has been accused of being a Government ploy to stop challenges and minimise rateable value loss. Armed with the correct upfront information there are ways to navigate the process and secure swifter resolution of challenges than there have been in previous lists, however, this will not apply to all types of challenges which will have to go through the whole formal process before resolution.
The Government has this month said it will be undertaking further work to consider end of list appeal arrangements in the light of the decision in March to bring forward the next revaluation, and has no current intention to implement an early deadline for appeals on the 2017 list. Watch that word current!
Many businesses will have a period where they have vacant property – be it pending redevelopment or surplus to requirements. After 3 or 6 months’ exemption, full business rates will be payable leading to hefty outgoings with no return. We advised on the leading court case on how to manage liability by undertaking legitimate periods of occupation for a short statutory period, so as to generate an occupied liability, thereafter, vacating and repeating the period of exemption.
“Legitimate” has become the latest battleground, and some Councils are challenging the occupation by putting the onus of proof on the ratepayer at forensic levels to prove that the occupation is of value to them, or in rating parlance: “beneficial”. Many ratepayers will use the property for storage purposes and it is important that a full documentary record is kept of the storage taking place, to include an inventory and records to prove how and when the property was occupied and vacated. Councils that are employing this challenge to ratepayers are raising the evidential threshold in a bid to frustrate the strategy. It is important to take advice, as there can be hundreds of thousands of pounds at stake for many ratepayers and if the scheme is not properly executed can also lead to heavy legal costs in proving occupation.
Redeveloping or refurbishing?
Business rates can add significant costs to schemes of redevelopment or refurbishment and developers will rightly want to minimise these. However, great care needs to be taken to ensure that all the requirements needed to remove a property from the rating list or obtain nominal rateable value during the works are satisfied. The recent landmark Supreme Court case commonly known as “Monk “has made it a little simpler to enable this, however, it is not a cure for all. There are many pitfalls that the unwary can fall into. Before undertaking a scheme it is essential that professional rating advice is sought. A mistake on the timing of the challenge or insufficient detail in scope or degree of works can mean the difference between a developers’ profit or a developer’s loss. Likewise, care needs to be taken on how far “completed” a speculative redevelopment should be, to avoid a completion notice being issued by the local authority or a new entry in the rating list where there is no immediate end user. The impact of transitional phasing provisions on calculation of rate liability also has major implications on property undergoing redevelopment.
The next Revaluation
The Chancellor in his Spring Statement 2018 has announced that the next business rates Revaluation will be 1st April 2021 – one year earlier than the previously announced date of 1st April 2022. The valuation date (AVD) will continue to be 2 years prior and has been set at 1st April 2019. Coinciding with the with the anticipated Brexit date of 29th March 2019 this will make for an interesting Revaluation. The announcement was made so that ratepayers can benefit from an earlier Revaluation cycle to reflect movements in rental values more closely. 3 yearly Revaluations will commence in 2024.
The Valuation Office are still struggling to resolve the hundreds of thousands of appeals outstanding for the 2010 revaluation. The chaos created under the new 2017 revaluation process has delayed many ratepayers from taking action, but the raindrops have started and an anticipated deluge of challenges is expected to land on the Valuation Office over the coming months. Many are questioning how the Valuation Office resources will cope with undertaking a robust and defendable revaluation next year. We think with great difficulty!
Business rates avoidance
Stealing the lead from English Government, the Welsh Government has recently launched a 3 month consultation to try to combat business rates avoidance, which they say can involve a “level of sophistication”. They are consulting on:-
- ways to improve the accuracy and timeliness of information provided about ratepayers’ circumstances
- whether the arrangements for empty property rates and relief should change to reduce avoidance
- reducing abuse of mandatory charitable relief by bogus charities
- whether a general anti-avoidance rule could be developed for non-domestic rates in Wales
- non-legislative measures to improve compliance such as joint working between agencies and resources to aid investigation
We await the outcome. Given the requirement for local authorities to maximise income from rates to support services, it will not be long before England consults too.
Gareth Buckley is Head of Professional Services at Avison Young and is a ground-breaking expert in Business Rates. He was formerly the Honorary secretary and is an elected committee member of the Rating Surveyors’ Association and a member of the Institute of Revenues Rating and Valuation (IRRV) board. He gives some insight into minimising the tax for ratepayers and forthcoming changes to the system.
This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.