Business Rates - GL Hearn

January 2013

Business Rates News

Chancellor ignores calls for business rates freeze Chancellor of the Exchequer George Osborne is expected to press ahead with an increase to the Uniform Business Rate. Making his annual Autumn Statement to the House of Commons on 5th December Mr Osborne made no mention of a call from leading business rates experts, including GL Hearn, for a freeze in uniform business rates. GL Hearn argued that a freeze would offer some relief to hard-pressed business ratepayers. However, Mr Osborne announced two concessions to business rate payers (see left).

Giving with one hand Empty property rates relief has been extended by Chancellor of the Exchequer George Osborne. The move could save qualifying ratepayers up to £167,000. Newly built commercial property completed between 1 October 2013 and 30 September 2016 will be exempt from empty rates (assuming it is not occupied) for 18-months - rather than the normal 3 or 6-month exemption. The catch is that no claim can exceed more than €200,000 (about £167,000) over the 2013-16 period. The Chancellor also extended the current doubling of small Business Rate relief for another year until 31 March 2014. The relief applies to properties with a rateable value under £12,000 where the property concerned is the only property occupied by that business.

Business rate increases are now expected to be pegged to the September 2012 inflation figure - 2.6 per cent according to the retail prices index. That means the uniform business rate for 2013/14 could increase from 45.0p in 2012/13 to 46.2p in 2013/14 in England and Scotland. In Wales the increase is likely to be from 45.2p in 2012/13 to 46.4p in 2013/14. In a subtle tax grab the Chancellor also announced an increase from 0.8p to 0.9p in the Small Business Rate relief supplement - a hike of 12.5% in this element. This increase is likely to be mirrored in Scotland but this supplement does not exist in Wales. The increases are less than those announced last year, which were based on retail prices index inflation of 5.6 per cent. Blake Penfold, business rates director at GL Hearn, says: “Whilst inflation is not at the high level that it was last year, the continuing poor state of the economy meant pressure on the Chancellor to freeze the Uniform Business Rate or at least to set it at a level below inflation as measured by the retail prices index.” “We and others have been lobbying the government directly, and on behalf of clients and professional bodies, for a freeze but the Chancellor has ignored this.”

STOP PRESS - In a disappointing move for ratepayers the Office of National Statistics announced on 10 January 2013 that there will be no change to the way the Retail Prices Index is calculated. Hopes had been high that the inflation measure would be revised to bring it more in line with the slower rising Consumer Prices Index. Although the government statisticians will publish a new version of the Retail Price Index from March 2013 (using the same formula for calculating inflation as the Consumer Prices Index) it means uniform business rates will still be set using the Retail Price Index. A change - now off the agenda - could have meant lower annual increases in Uniform Business Rates.

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GL Hearn Business Rates News - January 2013

An inspector calls? Local councils could be stepping up their scrutiny of business rates, following the latest legislation. The new Local Government Finance Act gives ministers the power to allow local councils to retain a proportion of business rates generated from new developments completed from 1 April 2013. The aim is to give billing authorities new incentives to support commercial and retail businesses in their areas. Details of the new powers are still to come, and GL Hearn does not expect councils to react immediately, but the new law will give councils an extra incentive for taking a much closer interest in who pays business rates, and on what basis. This could eventually include more completion notices on unfinished new properties; more inspections seeking to find new or altered properties that are not assessed; and more scrutiny on exemptions and reliefs such partly-occupied business rate relief.

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In this Newsletter Rating revaluation costly decision........................................... page 2 Scots ministers order empty rates hike.................................. page 3 Held in a queue with rates deferral red tape.......................... page 4 Empty rates liability - new rulings.......................................... page 5

A costly decision The 2015 rating revaluation is to be postponed until 2017 in a move that will cost some businesses dear. In October 2012 the Department of Communities and Local Government announced the government’s intention to postpone the 2015 Rates Revaluation in England until 2017. Ministers say that since the completion of the 2010 revaluation, which was based on 2008 rental values, the economy and property market have faced exceptional changes. They claim that a revaluation in 2015 would be likely to result in sharp changes to business rate bills in many parts of the country and in many sectors, and that business needs tax stability if it is to plan and grow. However, the rent for many business properties is now well below that in 2008 - meaning postponing the revaluation will cost these businesses more in rates for a further two years. The 2010 Rating List including existing appeal rights will continue to 2017 and the government is considering whether to extend the present scheme of transition for two additional years to 2017. The Scottish Government announced on 27 November 2012 that it too would postpone the 2015 Rates Revaluation until GL Hearn says: The decision appears to be 2017. The Northern motivated by concerns about government Ireland Assembly, income and in reality does nothing to address which cancelled its the issue of current unaffordable levels of 2010 revaluation, business rates. Instead of cancelling the has announced revaluation the government should take action that it expects to to reduce business rates - already one of the go ahead with a highest local property taxes in Europe. Revaluation in 2015.

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Health levy bites Scottish large retailers selling both alcohol and tobacco must pay the Scottish Special Levy Public Health Supplement. This three-year scheme, introduced in 2012/13 is payable by occupiers of shops with a Rateable Value of £300,000 or more. The Levy will be increased from 9.3p in 2012/13 to 13.0p for 2013/14 & 2014/15.

Shape the future Could changes to business rates help the Scottish economy grow? Scottish Ministers are seeking views on how the business rates system can better support sustainable economic growth, whilst still delivering the same level of income for government. The consultation includes questions on the effectiveness of current reliefs; the valuation appeals system; transparency and openness; and tax avoidance. Responses are to be submitted by 22 February 2013.

Scots Ministers order empty rates hike Empty property rates in Scotland are about to get much more expensive. The Scottish Government has decided that the rates liability on most empty properties will increase from 50 per cent of the full liability to a massive 90 per cent. However, Local Government Minister Derek MacKay also announced plans to introduce a ‘Fresh Start’ initiative which would see new occupiers of empty shops and offices in Scotland benefit from 50 per cent business rates reductions for their first year. It is believed that this policy will be targeted towards office and retail properties with rateable value higher than £18,000 which do not currently benefit from the Small Business Bonus Scheme. Empty industrial buildings and empty listed buildings will continue to attract full relief from business rates, say ministers. The change comes into effect from 1st April 2013. All properties will continue to be entitled to full rates relief for the first three months.

GL Hearn commentary: Changes to Empty Rates liabilities are likely to impose a very significant burden upon the retail sector, which is already facing tough trading conditions.

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Supermarket tax - nobody’s buying it The threat of a special business rates levy for large shops in Wales has receded. The Welsh Assembly Government says a Large Retailers Levy - already imposed in Scotland and Northern Ireland - could slow economic growth. Separately, Welsh Ministers have announced £20m support for business rates in the Enterprise Zones.

Belfast, Dublin rates revalued Revaluations are due to take place both north and south of the Irish border.

You are held in a queue Claiming under the business rates deferral scheme is time-consuming, frustrating and slow, say GL Hearn’s rating experts.

The last revaluation in Northern Ireland was in 2003 based on rental values at 1 April 2001. The Northern Ireland Executive postponed the 2010 Revaluation until 2015. Currently the 2015 Revaluation in Northern Ireland is expected to go ahead.

The current Business Rates Deferral Scheme was introduced in England, Scotland and Wales from 2012/13. The deferral amount is 3.2% of the total amount of the 2012/13 rates bill in England and Scotland and 3.36% in Wales. There is no deferral scheme for Northern Ireland.

In the Republic, Dublin city centre is the next area to be revalued as part of a nationwide rolling revaluation. The revaluation comes into effect from 1 January 2014 based on a valuation date of 7 April 2011.

“There have been delays in processing applications while billing authorities software is updated, some billing authorities have struggled to understand the legislation and, for example, calculated the deferred liability with reference to the wrong rate year, and in some cases billing authorities have not turned over the official Scheme Application form and have therefore not had regard to any additional properties for which the deferral application is being made.”

The schemes requires ratepayers to make an individual application to the local authority for each property for which they seek deferral. Blake Penfold, business rates director at GL Hearn says: “Although it offers some cash flow benefits to hard pressed businesses, the current scheme is full of administrative complexities.”

“For those billing authorities which channel telephone enquiries through a help desk it can be a particularly frustrating and time consuming experience trying to make direct contact with an officer who is able to deal with questions relating to the scheme.”

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Cut bills by merging hereditaments? Ratepayers who occupy several floors in the same office building could have them combined to form a single hereditament - even if the two floors are not next to one another. The decision could save tenants money. A tribunal agreed saying they were occupied together and there was access between them. An appeal is pending.

The day it all changed Valuation Officers can backdate corrections which increase rateable value where there has been a material change of circumstance, a tribunal has decided. Ratepayers now need to accrue for potential backdated liabilities in cases where a property is believed to be underassessed and has had alterations carried out to it. A tribunal ruled that where both an inaccuracy in the rating list and a material change of circumstances are involved, the effective date should be the date of the material change of circumstances.

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Our regular roundup of the latest rating decisions from courts and tribunals

Empty rates liability new rulings What counts as rateable occupation of a building could be less than billing authorities think, three recent court rulings suggest. Landlord Makro Properties won a ruling that the storage of documents using 0.2% of the floor space of a warehouse was enough for there to be occupation. The judge found that the use of the storage of pallets of documents in a warehouse in Nuneaton was not “a trifling use”. This established that there was actual occupation and that it was more than de minimis; the documents being stored had a value and Makro was required to retain them. This in turn established that the occupation was beneficial. Since the tests of rateable occupation were satisfied and the occupation had been for a period of at least six weeks, it followed that a new six-month rate-free period was triggered. A separate decision about office units in Chesham supported the view that only very limited occupation is required to trigger a new rate-free period and that this can include occupation that is solely for the purpose of mitigating empty rate liability. In a third case in Cheshire, the landlord of a vacant office building let the premises under licence to a local crime prevention charity so it could install a Wi-Fi network as part of a crime prevention campaign. As a registered charity it is entitled to a mandatory 80% charitable rate relief. Initially, the council granted an additional 20% discretionary rate relief. However, it became concerned that the scheme represented empty rate avoidance and requested that the valuation officer create a separate rating assessment in GL Hearn rating experts say: Since 2008, billing respect of the Wi-Fi authorities have increasingly sought to argue network, arguing that limited acts of occupation do not constitute that the charity was rateable occupation so as to establish that they not in occupation do not trigger a new rate-free period. of the building and so was not entitled “It is hoped that the government will look at to charitable rate these and other cases and conclude that they relief. The Court result from a badly designed tax that needs determined that amendment - the reintroduction of some degree the charity was in of empty property rate relief (say 50%) and raterateable occupation free periods that reflect the reality of re-letting of the building properties in the current market would be a good and entitled to start,” says GL Hearn director Blake Penfold. charitable rates relief.

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For further information on ‘Business Rates News’ or on any general business rates matter please contact Blake Penfold on 020 7851 4958, Paul Dickinson on 07768 381814 or Andrew Hetherton on 023 8021 0680 or your usual GL Hearn contact. We endeavour to keep our mailing lists up-to-date. If you would like to be removed from the list, or you have a colleague who would like to receive future issues of ‘Business Rates News’, please email [email protected] with details. Disclaimer. GL Hearn are not responsible or liable for any actions taken from use of content and opinion expressed within the publication.

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