There is a general perception that business rates are set by local authorities and used to pay for local services. In fact, the rate poundages are set nationally, local authorities are mere collection agencies for the Central Government and rateable values are determined by the Inland Revenue Valuation Office Agency (VOA) in England and Wales, and by the Scottish Assessors (SA) in Scotland.
According to Treasury information, business rates will realise £19.1Bn this year. The UK business rate raises a greater percentage of gross domestic product than its equivalent in many of our leading international competitors.
Business rates liability, in its simplest form, is calculated by multiplying the rateable value of the property by the uniform business rate multiplier (UBR) for the appropriate year. The principal exception to this simple calculation is the effect of transitional capping arrangements, which limit year-on-year increases and decreases.
The current UBR for England is 45.6p (a high tax rate of 45.6%). Different rates apply in Wales and Scotland. In most years the UBR moves in line with changes to the retail price index, however, this linkage is going to be broken by the 2005 Revaluation.
The rateable value of a property is essentially an estimate of its rental value at a specific date. For the 2005 Revaluation, the valuation date will be April 1, 2003. It does not matter whether a property is occupied freehold or leasehold, the assessment will always be on a common basis using a market rental level. In order to ensure fairness, all properties are assessed on a common valuation date, which is always two years prior to the coming into force of the next Revaluation. The VOA/SA may adopt the actual rent paid on a property as its rateable value if the rent is fixed close to the valuation date and the terms of the lease are in line with certain rating assumptions. It is therefore doubly important for occupiers to have minimised rents on new lettings or rent reviews, either side of this valuation date, as these rental settlements can have a direct impact on business rates payable from 2005 onwards.
To collect rental information the VOA and SA have issued rent return notices. The notices are looking for relevant information (mainly rents) to help the VOA and SA in preparation of the valuations. Recent legislation now enables the VOA to fine businesses for not returning the required information. If after 56 days from the notice date the form is not returned the VOA can charge a fine of £100 for non-completion. After a further 21 days another £100 may be levied together with a charge of £20 per day until the form is returned. For the first time, the VOA is committed to issue summary valuations to most ratepayers setting out their rateable value calculations for the 2005 List. The valuations are due on the Internet in October 2004. It hopes that in providing more information upfront, businesses will be comforted that their rating assessments are reasonable. While some may be fair, the VOA’s track record makes it unlikely that all errors will have been removed from the valuations.
Until these draft list figures are published, commercial ratepayers will not know what their 2005 rate liability will be but the Office of the Deputy Prime Minister (ODPM) has just released figures showing the broad impact of the 2005 Revaluation for England both by region and property type. The figures show the largest increases in rateable value for properties in the South and South-east and for shop premises, reflecting the nationwide retail boom.
The overall rise in rateable value for England shows an increase of 17.9% but this will be offset by a fall in the UBR multiplier. The ODPM has based its calculations on an estimated 2005 Multiplier of 41.5p for England (9% down on the 2004/05 multiplier of 45.6p) but this is likely to change before April 2005.
The following shows the ODPM estimated revaluation impact on rate liability for warehouse properties in England. The figures do not include the annual inflation increase and are therefore a direct comparison with this year’s rate liability. The Welsh Assembly and Scottish Executive have not produced comparable figures.
While the impact of the 2005 Revaluation on distribution properties is not likely to be as significant as for other property types, we anticipate that in certain areas, larger than expected increases will occur as the VOA catch up with under assessments on earlier rating lists. Where current rateable values are significantly less than the rent, ratepayers could be facing a large rise in their 2005 Source: ODPM ” Revaluation, Transitional Rates Relief and Small Business Rates Relief”