Business Rates – Interim findings reveal ongoing "Tug of War"

At the Autumn Statement 2014, the government reaffirmed its commitment to improving the business rates system, responding to business' concerns about the tax burden it puts on them.

The first announcement was the continuation of the 2% cap on inflation-linked increases for business rates for a further year from April 2015. Over half a million small businesses are to benefit from the doubling of Small Business Rate Relief; and increasing the £1,000 business rates retail discount for lower value retail premises to £1,500 is intended to help around 300,000 shops, pubs and cafes. This builds on a £2.7 billion package of support for ratepayers announced at Autumn Statement 2013. So far, so good.

What has gone on for far longer with less of a fanfare is the government's discussions on the long-term reform to business rates, which started in December 2013. The government has been working with businesses, their representatives and local authorities to identify how the business rates system can be improved. Leading on from this the government will then conduct its much trumpeted review of the future structure of business rates, reporting in by the Budget, 2016. This will be a fiscally neutral review.

The government has set out its interim findings under five headings:

1.Progress to date and next steps

2.How often property is valued

3.Challenging and appealing rateable values

4.Information gathering, use and exchange

5.Billing and collection

Progress to date and next steps

The government asked for views about 5 aspects of the business rates system:

How property is valued

1.How often property is valued

2.How business rates bills are set

3.How business rates are collected; and

4.How information about ratepayers and business rates is collected and used

The government received a total of 217 written responses, in addition to responses from Her Majesty's Treasury, Department for Communities and Local Government and the Valuation Office Agency (VOA) which held over 30 workshops and visits throughout England.

The stand out issues identified were:

There are too many appeals and it takes too long to resolve them

•Current system and procedures frustrates ratepayers

•Current system is unfair on those ratepayers who are owed a reduction in their business rates bill

•70% of all rates bills result in no change to the Rateable Value (RV)

At the Autumn Statement 2013 the government published a discussion paper on the administration of business rates in England. The reforms set out in this discussion paper were aimed at allowing ratepayers to check that their RV was correct, provide better information to support their case if they wished to challenge their rateable value and to improve the process for settling appeals.

The response to these proposals has been positive, however most were not convinced the package as a whole would go far enough.

Stakeholders' views

The views of ratepayers, their representatives and local authorities were:

•The majority of respondents want all 1.8m properties in England to continue to be value individually

•Over half of respondents, including most businesses and their representatives favoured less than 5 yearly revaluation cycles, believing this would better align rateable values to market conditions

•A significant minority of respondents, mostly representing local government, did not favour more frequent revaluations, arguing this would destabilise certainty and stability to both business and local government

•More than half of businesses felt billing and collection needed significant improvement and that digital options should be explored

Appeals

Stakeholders felt that the proposed Rateable Value Information Sheet would not provide sufficient information for them to check their RV without appealing and others thought that some ratepayers would struggle to provide fuller evidence with their appeal than they currently provide.

How property is valued

Ratepayers have sent a clear message to the government that they support individualised approach to valuation and want to continue receiving an individual valuation for their property. It was made clear that a broad brush approach such as employed in the Council Tax bandings would not be acceptable. As a result, the government has confirmed it has no immediate plans to change the current approach to individual assessments.

The government will also continue to work with ratepayers who occupy specialist property, such as licensed premises, to ensure valuation methods can be more easily understood by unrepresented ratepayers.

Lastly the government continues to keep under review the valuation of plant and machinery.

How often property is valued

Opinion is divided. As a result government propose to continue the discussion on frequency of revaluations to understand better the main differences in opinion. Discussions are to be focused on:

•The costs and benefits of more frequent revaluations

•What more frequent revaluations would mean for all stakeholders

•How the gap between AVD and the start of the valuation list can be reduced while maintaining accuracy of the list

The current findings are that ratepayers would prefer 3 yearly revaluations and local authorities wish to stay at 5 yearly patterns. Overall the VOA's analysis suggests that more frequent revaluations could improve fairness in the rating system by ensuring rates bills reflect changes in rental values.

The government's counter argument to more frequent revaluations is that they feel it will not make it easier for ratepayers to predict what their rates bills will be; with some who are predicting reductions still seeing their bills rise.

Another issue is the additional cost of carrying out more frequent revaluation due to the increased number carried out over a longer period of time. This would also increase the number of appeals and, without reducing the total number of challenges, the system would require a greater number of resources to service it.

Checking Your Rateable Value and Making Challenges

The government has identified problems with business rates appeals and has taken immediate steps to reduce outlays.

Ideas include but are not limited to providing:

•Alternative informal routes that allow ratepayers to check or seek changes to rateable values, including how and when evidence used for valuations should be shared with ratepayers

•Improvements to formal routes of appeal, including consideration of the information to be supplied with a formal challenge and how appeals should be made to the Valuation Tribunal of England

•Consideration of whether a charge should be brought into the process of submitting a formal appeal

Information Gathering, Use and Sharing

The government is committed to improving the transparency and accountability of government and its services while recognising its responsibility to protect taxpayer's personal data. Ratepayers and their representatives want greater access to information held on their behalf by the VOA and have suggested other public bodies should communicate better with them where they hold ratepayers' data. For this to happen the government will need to change the law therefore further consultation is required on this matter.

Out of all this the government has committed to setting up a forum for ratepayers, their representatives, landlords and local authorities to bring forward practical improvements:

Ensure the VOA has the data it needs to carry out timely and accurate valuations

•Ensure information about changes to properties can be shared between public bodies and accurately reflected in valuations in a timely manner

•Improve the VOA systems for gathering rental data

•Ensure the VOA can increase transparency of the valuation process and of individual valuations whilst continuing to provide the right level of protection for information given to it in confidence

Billing and Collection

The government is committed to making tax easier, quicker and simpler for businesses to deal with and pay. It wants to ensure that bills meet the needs of businesses, as well as local authorities. As a result, the government will set up a billing and collection forum that will bring forward practical improvements to the billing system including consideration of digital options.

Other Supplementary Issues

The valuation date: currently set at 2 years prior to the revaluation itself the government is opposed to reducing this to 1 year citing the adverse effect this would have on available evidence. This is contrary to the desires of other stakeholders who feel it would bring the evidence closer into line with more relevant market rental evidence. The government has evidence showing that at the last revaluation had the AVD been 1 year prior to the commencement of the list then one third of the evidence relied upon would not have been available. Therefore reducing the revaluation would reduce the accuracy of the list and generate uncertainty for local government.

Challenging and appealing rateable values: The government feels the current system has too many formal appeals and that they take too long to resolve. Too many appeals are made due to ratepayers having little or no supporting evidence available to assess whether their RV is fair. The VOA is working on settling appeals more quickly and at Autumn Statement 2013 the government committed to resolve 95% of the 168,000 appeals outstanding as at 30 September 2013 by July 2015 so that in the short term ratepayers can have their case resolved quickly.

As of 30 September 2014 this figure had fallen to 52,000 but too many resources are tied up in that 70% of all appeals are withdrawn, compounded with a lack of communication from the VOA until the last minute or at a Tribunal hearing.

Conclusion

The interim findings show a clear tug of war between what the VOA and local authorities' desire and that of ratepayers, landlords and their representatives. One common theme is that everyone wishes for lower costs and greater efficiency to the entire system.

Ratepayers desire more transparency from the VOA whereas the VOA desires it from other government bodies. Due to being in a world of greater austerity it would appear the government are reluctant to provide more frequent revaluations due to increased costs at all stages, revaluation and list defence.

Stuart can be reached at stuart.hicks@dunlopheywood.com.