Michael Yass - Associate

When I was asked to write an article about the 2010 Rating List that comes into force on 1st April this year, bizarrely, two quotes came to mind; one is: “nothing in life is certain except death and taxes”, and the other: “nothing is exactly what it seems”. Whilst they both seem to contradict each other, they can also both be said to be true of the rating system, and the calculation of business rates liability.

Rateable Values (RVs) of all commercial, licensed and leisure property in the country are reviewed every five years. This happens with certainty, as surely as we have to pay business rates liability and other taxes. Even though the economy has been in recession, it is generally accepted that property values increase over a number of years. Indeed, looking at RVs of approximately 10% of leased public houses and a sizeable proportion of hotels in the country, the average rating assessments will change as follows:

Public houses +23%
Hotels +33%

The above figures are averages. There will be types of properties, and properties in certain geographical areas, that will reduce in value. The result of this, of course, is that some RVs in the 2005 Rating List will increase by more than the average from April this year and significantly so on occasions.

All occupiers should have received Summary Valuations from the Valuation Office Agency (VOA), the organisation responsible for assessing RVs, detailing how the 2010 rating assessment of their particular property was calculated. Rateable Values can also be viewed on-line at www.voa.gov.uk.

The RV of a property is NOT the amount of rates liability paid to a Billing Authority. To calculate the amount of rates payable, a Uniform Business Rate (UBR) is applied to the RV of a property. The UBR in England for the year just finishing, 2009/10, is 48.1p/£ and 48.5p/£ for “small” and “large” properties, respectively. These figures will change to 40.7p/£ and 41.4p/£, respectively. For the purposes of the 2010 Rating List, “large” properties are anticipated to be those with RVs of £18,000 (£25,500 in London) or more. The current threshold is £15,000 (£21,500 in London).

In Wales, the UBR will reduce from £48.9p/£ to £40.9p/£ this April, with no distinction between “large” and “small” properties. At the time of going to press, the 2010 RVs in Scotland are yet to be published.  No decision about the UBR here can, therefore, be made until RVs are released by the Assessor’s Office. 

At this point, may I remind you of the second quote – “nothing is exactly what it seems”. One might be forgiven for thinking that, to calculate the rate liability from 1st April, one multiplies the RV by the UBR. The Government, however, is introducing Transitional Relief (phasing) in a bid to help those occupiers of properties that have experienced significant increases in RV between the 2005 and the 2010 Rating Lists. Where sizeable jumps in rating assessment have occurred, the Government is not expecting occupiers of those properties to pay the greater amount in one lump sum. The purpose of Transitional Relief is to limit the rise in rates payable each year over the life of the 2010 Rating List.

The system of charging business rates liability is required by law to be self-financing. In practical terms, for the Government to be able to limit any increase in rate liability by Transitional Relief, it must limit any reduction in rates payable where there are significant drops in RV between the 2005 and 2010 Rating Lists. 

Where sizeable changes in RV occur, Transitional Relief will be applied as follows:

To theses percentages, the Retail Price Index (RPI), will be applied to the calculation of rates bills each year. The RPI in September 2009 was –1.4%. Thus, the increase in rates liability for a “large” property, from this coming April will be 12.5% – 1.4%, a total change of 11.1%. 

Please note that Transitional Relief will not apply to the calculation of rates bills in Wales. Similarly, a decision about phasing in Scotland can only be made when the rating assessments are known.

It is true that the primary purpose of a rating appeal, and related advice, is to reduce the rate liability attached to a property. Common sense would suggest that the earlier the effective date from which a rating assessment is reduced, the greater the savings in rates bills would be. Don’t forget, however, “nothing is exactly what it seems”. On occasions, greater savings can be achieved by reducing a Rateable Value from a later date.

At times, the best advice is to make no appeal at all, such as when Transitional Relief is to be considered. When advising clients, it is important to understand the impact on the level of rates payable that a reduction in RV may have. 

There is no doubt that there is a great deal to understand about rating, and a great understanding of it is also required to provide effective advice. It is also important to understand the businesses that are being advised in order to be able to represent them in discussion with the VOA, when appeals are appropriate.

Fleurets has a dedicated team of rating surveyors, able to provide practical and pro-active advice concerning all hotels, restaurants, pubs and bars, with an innate knowledge of the licensed, leisure and hotel trade.

To find out how Fleurets may be able to assist you with rating advice, please contact:

Michael Yass
London Office 020 7280 4700
Jim Yarwood
Birmingham Office 0121 236 5252
Alastair Jack
Leeds Office 0113 234 0304