Key things to know from the business rates review final report
For a Budget focused on economic prosperity as we emerge from the shadow of Covid, it’s interesting that the ‘continued provision’ of business rates relief formed such a prominent part…
Retail, hospitality and leisure properties in England have already been awarded 100% business rates relief for the full 2020/21 rate year and Q1 of the 2021/22, followed by 66% for the remainder of the year – capped at £2m per business for properties that were required to be closed on 5 January 2021, or £105,000 per business for those not required to close. This is old news and its prominent inclusion in the Budget is proper political spin that was unnecessary when you consider other announcements.
The government also claims to have supported every sector of the economy across the UK through business rates holidays, lending guarantees grants targeted VAT cuts, financial support packages and recovery funds. There will be plenty of owners of empty buildings who wholeheartedly disagree as the assistance received amounts to the princely sum of £0. The Budget also regurgitates the range of measures to support commercial property tenants and landlords – again I very much doubt that landlords see the protection afforded to tenants who haven’t paid rent as support.
Other highlights include significant investment in HMRC and the Valuation Office Agency to Digitise Business Rates, or DBR. DBR is long overdue and anyone who has seen rates bills from different council areas will understand the inconsistencies and terrible presentation of bills that make many incomprehensible even to specialists! What’s required is a single, consistent portal for use by all Billing Authorities across England, Scotland and Wales but with business rates being a devolved power (and the typical cross-border squabbling) this is highly unlikely to happen. I hope I’m proved wrong.
Other announcements of old news include full business rates relief in Freeport tax sites in England until 30 September 2026 and City and Growth Deals. The government is accelerating investment of £84.5m over the next five years in three City and Growth Deals in Scotland (Ayrshire, Argyll and Bute, and Falkirk) and three in Wales (Swansea Bay, North Wales and Mid-Wales).
There were a number of other points raised in Wednesday’s speech that weren’t actually included in the formal Budget document but were covered in the Business Rates final report.
You may recall that the Fundamental Review of Business Rates was announced what seems like eons ago and the outcome has been delayed countless times since. Rishi tempered our expectations a week or so ago, stating that the fundamental review wouldn’t be quite as fundamental as was initially intended and we were all expecting it to be a bit of a damp squib. In all fairness though, what it’s delivered is much more comprehensive than expected and sets out considerable reform. Reform is absolutely the right answer as, like it or not, the £25bn collected through business rates each year has a low collection cost and high collection rate compared to any other form of taxation. So business rates is here to stay. For the medium term at least.
The key elements of the report are set out below. Remember this mostly relates to England as Scotland & Wales have devolved powers on business rates and are likely to mirror many of the England findings.
Continued Retail Hospitality & Leisure Relief
This is a temporary relief equating to 50% off the annual business rates liability for 2022/23. As mentioned above, occupiers in these industries have had 100% relief for 15 months and reduced liability for the remainder of the current rate year. The problem with this latest proposal is that relief is capped at £110,000 per business. To put that in perspective M&S has an annual rates liability in excess of £150m. Reliefs this year will reduce that figure by circa £40m. Next year they will receive £110,000. The sentiment is clearly to help smaller businesses but the failure of multi-site occupiers has a much greater impact on our town centres. Having spent some time recently looking at repurposing ex-Debenhams stores the government needs to take a long hard look at the cap, otherwise the relief is an empty gesture that will fail to provide any form of meaningful support to the big names on our high streets.
Freezing the business rates multiplier
This is something of a non–event. The multiplier was set to rise from £0.512 to £0.514 so a company with a Rateable Value of £100,000 would see savings of £200 – “providing certainty and stability to businesses ahead of the 2023 Revaluation”. Yep, I’m sure that saving will set everyone’s minds at ease, Rishi. The annual multiplier change will be based on to CPI rather than RPI going forward.
Three yearly revaluations
The 2023 revaluation will go ahead and mark the start of a new three-year cycle. Improvements to the VOA’s digital infrastructure is essential to enable delivery and HMRC are providing considerable investment. There will also be a mandatory requirement to divulge any changes to the property or occupier to the VOA, as well as providing lease information. There will be a fair and proportionate compliance regime as well as a ‘light touch’ annual confirmation requirement. This is a paradigm shift into a new mandatory requirement to divulge information to the VOA. It will flag alterations and improvements and facilitate delivery of the new relief for property improvements and green investment in commercial buildings. Without doubt it increases the burden on ratepayers. By 2026, the next revaluation, this annual compliance statement will remove the need for the Check stage of the currently three stage Check Challenge Appeal process on the basis that the facts upon which the rating valuation is based has already been confirmed as correct.
The most controversial point is that from 2026 ratepayers will have only three months to raise a challenge. There has been a similar system in Scotland for years, with appeals restricted to the first six months but I’m sceptical that the VOA will be able to deliver the evidence on which assessments are based and allow a response within such a short period of time. Expect the rating ‘land grab’ by agents to start almost immediately but beware – there are still unscrupulous operators out there. If in doubt, check membership of the Rating Surveyors Association.
The government has committed to a statutory obligation to deal with Challenges within the period of the specific revaluation which removes the possibility that the VO could be dealing with multiple rating lists at the same time. This is good news for ratepayers but the VOA will need extensive modernisation and additional staff to deliver this. HMRC has provided a Budget to deliver this in two phases, with the first being improved guidance on rating principles and valuation methodology before the 2023 list and full supporting rental evidence and analysis prior to 2026.
Providing stability ahead of the 2023 revaluation by extending Transitional Relief
At first glance, this seems biased towards limiting increases in liability where RVs have increased but of greater issue is where RVs have decreased. The retail sector in particular will see massive reductions for the 2023 list but transitional relief, if implemented in the same way as previous lists, would result in it taking many years to phase in the dramatic reductions. For obvious reasons allowing a dramatic downward shift in rates liability on retail stores is essential. The government will carry out additional consultation and release findings prior to the implementation of the 2023 rating list.
Online Sales Tax
The government will also enter into consultation about the implementation of a new online sales tax which could be used to reduce the tax burden required through business rates. There are lots of challenges, many online sales are high volume/low margin and taxes will just lead to inflation in the cost of goods. It needs further consultation and we need to get away from the attention grabbing but meaningless figures – I’ve lost count of how many times I’ve seen Amazon being used as the rationale for OST on the basis “they don’t pay tax in the UK”. A quick calculation shows that their business rates liability is in excess of £60m. Of no relevance to this, but interesting nonetheless, is that liability on delivery lockers is over £350,000.
Improving the relief system
In short, there are no changes intended at this stage, but the government will start consulting about the misuse of empty property relief next year. I’m surprised that there hasn’t been an immediate shift to follow the model in Wales, where the occupation period before a new void period is granted will be extended from 6 weeks to 6 months from 1/4/22. This was an obvious target that’s been deferred a little while longer but reinforces the need for an effective rates strategy that considers deletion rather than mitigation in instances where there is likelihood of long term voids and the case law developments in recent years supports this approach.
All in all, the results of the Budget and business rates review have produced a package on ongoing measures that should deliver a more modern and robust business rates system. Digitisation of bills should make it easier to understand and administer business rates for ratepayers who currently deal with a war in paperwork every year.
Annual returns is a double edged sword, it allows the VO to keep property records and valuations up to date and provides initial relief but with a guaranteed stream of ongoing additional rates liability for improvements. It removes the problem of massive backdated liabilities faced by some occupiers but will create a huge headache for some. I know of at least one building with c.100,000 sq ft missing from the rateable value and there are many others where we’ve deliberately kept our heads down for many years. These changes, plus the proposed consultation on transitional relief and empty property relief make the business rates system fit for purpose.
It was almost worth the wait, Mr Sunak.
There are a couple of announcements that are increasingly conspicuous in their absence.
The next business rates revaluation has changed more frequently than Dominic Cummings’ allegiances.
Occupiers are being inundated with requests for information on their property as the Valuation Office Agency gears up for Revaluation 2023.