Tuesday 25th Oct 2016 - Logistics Manager

Act now to beat rule changes

growth over the past five years, for example in the Midlands – Hams Hall, Birmingham and DIRFT – other areas, principally north of the A50 corridor, have seen much lower patterns of growth.

Rental growth in the Midlands’ ‘Golden Triangle’ has also been affected by high land values and shortages of labour that has pushed more logistics operations northwards from the South-east of Birmingham up to the North-west around Manchester, and from Leicester up to Doncaster. This trend should impact on assessments across a large area of England, but the VO may need a great deal of assistance in finding the ‘right’ spread of assessments to reflect April 2003 market conditions, particularly for new lower-cost premises in areas where there is little historic evidence and for those that are now over-rented.

Other areas where logistics occupiers may find rate increases running well ahead of inflation are in areas of the South-east – particularly around the M4 corridor to Heathrow and other prime M25 locations where rental growth has been greater than that generally found in the Midlands and the North.

Levels of value in the logistics sector are often difficult to identify due to the absence of open market rental evidence for large distribution warehouses. This can cause the VO to rely too heavily on a few prominent historic deals for smaller warehouses – often those showing high rental levels, when the pattern of rents nationally or regionally may be more modest. The importance of consulting with rating specialists with a strong presence and experience in the logistics sector is important so this wider experience can be brought into play either ahead of the VO making an assessment, or afterwards on appeal.

Factors that can properly be taken into account by your business and its rating advisers are many and varied. Changes in the requirements of occupiers – which are often demand driven by retailers – are very important in influencing values, both up and down. Is the size, layout or technological modernity of the unit appropriate to today’s market? Are loading bays sufficient in number, size and alignment for the larger lorries being used? Is the unit conveniently located to a major port or has the location suffered from traffic congestion or labour shortages, causing demand to fall over the period? Does construction include composite panels?

If it does, this can reduce demand and hence values considerably due to the difficulties in securing fire insurance, as can the absence of an up-to-date sprinkler system.

With the VOA’s stated desire to get valuations ‘right first time’ for this Revaluation, every effort should be made to attempt to enter into meaningful discussions ahead of the 2005 Rateable Value being set, with the prospect of influencing an assessment favourably, and without the usual lengthy delay of the formal appeal process, provided a well argued case can be put.

It is not just the level of Rateable Value that logistics operators need to be aware of when budgeting for their business rates liability. The Local Government Bill, due to pass into legislation this autumn, also offers the Government opportunities to raise the annual rate poundage (the multiplier which is applied to a property’s rateable value to give the annual rate liability) over and above the usual inflation capped limitations.

The new 2003 Local Government Act will:

l Remove the inflation cap on increases to the annual rate poundage. This will permit nationwide or location specific increases in the rate poundage to fund special projects or to accommodate the loss of income due to successful appeals, hitting those who have not participated in the appeal process.

l Offer relief to small businesses, funded by larger businesses. Small businesses are defined as having a Rateable Value below £8,000. This means a sharp increase in the poundage falling on some other businesses, adding further ‘above inflation’ costs.

l Rate flexibility – upwards. If these changes were not enough, the act will also lead to the introduction of Business Improvement Districts (BIDs) in some areas. This means local authorities will be able to levy a further additional charge on occupiers (up to 5% of a premises’ rateable value) to finance improvements to the urban environment, provided a majority vote of those organisations liable for the additional cost has taken place. Again, many medium to large businesses are likely to pay most of the BID costs, even if they vote against the extra spending.

l ‘Transitional arrangements’ must be self-financing. Since 1990, after each five yearly Revaluation, transitional arrangements have been used on an ‘ad hoc’ basis to soften the blow of big rate increases by phasing these over a number of years (with those due large rate reductions also having to wait). The new act will enforce ‘self financing’ rules. Currently, the Government can be flexible and hurry through rate reductions by meeting some of the costs through general taxation, but under the new act this will not be possible.

Aside from the measures in the Local Government Bill, there are other possible property tax increases in the pipeline (not to mention the stamp duty changes on commercial leases announced in the last Budget). The Government has flagged up the possibility of imposing an additional land tax on properties benefiting from increased values due to infrastructure improvements financed by central or local government, as if ‘they’ – the government – gifted the money without first raising it. The reality is that business contributes over £15Bn each year through Business Rates alone and has every right to expect infrastructure projects to be met out of this and other business taxes.

Specific initiatives, such as London’s bid for the 2012 Olympic Games and the Crossrail project in London, are also being linked to raising finance through increases to the rate poundage in specific locations. This follows on from the increase in the City of London to cover the cost of extra policing in light of the increased threat of terrorism.

It also needs to be remembered that any improvement to a location, whether funded through business rates or otherwise, has the potential to increase the rental values of leased properties and consequently, this would be reflected in higher Rateable Values at the time of the next Revaluation.

Business rates are a large overhead for many logistics companies – an overhead that is likely to rise at a rate well above inflation from 2005. With margins within the industry typically in the region of 4%, it is crucial that business rates are controlled and managed in the same way other costs are managed and controlled.

For this reason, companies ignore the run-up and consequences of a Revaluation at their peril. These perils are greater in 2005 as the Government seeks to raise more revenues by ‘stealth’ changes in the rules. Sizeable opportunities, with the right advice, exist to limit or to l Improving data collection and analysis.

l Seeking feedback on levels of value.

l Providing summaries of how valuations have been determined ahead of the next Revaluation (by October 2004) allowing assessments to be contested and adjusted prior to the List being implemented. considerably reduce the financial impact of the 2005 Revaluation if you act sooner rather than later. What’s more, in so doing you might find there is a better property option to suit your needs – but that’s another story! n

Paul Danks is market and services partner for NAI Fuller Peiser, a rating and property consultant serving the logistics sector, and a committee member of the Rating Surveyors Association. Tel: 0870 7002233.


How is my rate bill calculated?

The amount of rates you pay is calculated by multiplying the property’s rateable value by a business rate multiplier/poundage, which is set annually. The resultant bill may then be adjusted by the application of “Transitional Arrangements” to cushion significant changes, whether upwards or downwards.

Why do we have Business Rate Revaluations?

Five yearly Revaluations redistribute Business Rate payments in line with relative movements in rental levels of all business property types and locations. The next Revaluation is due on April 1, 2005, and will reflect rental value changes over the five-year period between April 1,1998 and April 1, 2003 (the reference date).

Why are Revaluations important?

Businesses pay taxes of over £15 Bn per year raised through Business Rates. How this large tax is raised can change markedly over five years, with some businesses facing Business Rate increases of well over 50%, others sizeable reductions. From 2005 these increases could be compounded by above inflation annual increases and additional ‘local’ business taxes.

Can Business Rate levels be influenced?

Yes, the rateable value or assessment of premises can be influenced in a number of ways. Between Revaluations, businesses can appeal on the basis of a ‘material change in circumstances’ since the initial assessment was made. It is also possible to appeal the assessment once the Rating List has been published if you think it is too high. Alternatively, it may be possible to enter into discussions with the Valuation Officer (VO) ahead of the List being finalised in order to arrive at a lower initial assessment. To do best on appeal, businesses generally need to seek the advice of rating advisers that specialise in their sector as a great deal of relevant comparative rental data and industry awareness is needed to justify a reduction in the initial assessment.

New approach – ‘right first time’

The Valuation Office Agency (VOA) has said that for the 2005 Revaluation it will operate a ‘right first time’ policy that should reduce the number of appeals. This will be based upon:

The success of ‘right first time’ will hinge both on the level of awareness of businesses and their consultants to “influence” initial valuations and the availability of VOA resources for discussions prior to Autumn 2004.