The Chancellor announced several changes to business rates during his budget and took the opportunity to also publish the final report on the Business Rates Review. The announcements apply to England only as business rates is a devolved power.
Interestingly the final report has now dropped the word “Fundamental” from its title which is informative.
We set out the changes and our thoughts on each.
The Government has confirmed that “business rates are a vital component of the business tax mix” and there is not a case to radically overhaul or abolition the tax. Consequently, the Government is not planning to change the nature of business rates, but merely implement relatively minor changes in an effort to make its “operation fairer and more effective for business”.
We say: Many ratepayers will be disappointed that the Government is not proposing more radical changes.
Some advocated the scrapping of business rates altogether, but given almost £30 billion is raised annually, the Government would need to find alternative revenues sources.
The 2022/23 multiplier in England will be frozen.
We say: The multiplier is applied to the rateable value of a property to determine the rates liability.
Each year between revaluations, legalisation allows the Government to raise the multiplier by inflation.
Consequently, the 2022/23 multiplier could have risen by 3.1%.
The freezing of the multiplier and hence liability for 2022/23 will be welcomed by all ratepayers and amounts to a reduction in rates liability of almost £1 billion next year.
A new rates relief in 2022/23 for eligible retail, hospitality and leisure businesses in England to support high streets will be introduced. Eligible properties will receive 50% relief up to a cash cap of £110,000 per business.
We say: This new relief appears to be very similar to Expanded Retail Discount.
However, the Government needs to set out the eligibility detail which is likely to be done within a future Guidance Note to billing authorities who will administer the relief.
The cap is applicable to each business. This relief will be welcomed by SME’s but represents a modest benefit for ratepayers with large or high value portfolios.
It also appears targeted on the high street, so there might be a tightening of the eligibility criteria compared to Expanded Retail Discount.
No decision has been made on the introduction of an Online Sales Tax as part of a package of measures to rebalance the taxation burden between traditional bricks and mortar shops and online. The Government are proposing a further consultation on the matter.
We say: This delay is hardly surprising, given many traditional retailers also have online operations which potentially could lead to double taxation of high street ratepayers.
Similarly, what online sales would be taxable? For example would banking, insurance and travel sales be included? How would the sale of services be treated?
A new improvement rates relief will be introduced in 2023. This will provide ratepayers 12 months relief from higher rates bills after they have made eligible improvements to an existing property. The Government will consult on how to implement the new relief.
We say: A higher rateable value and hence liability will be likely if a ratepayer invests in their property.
This new relief will at least delay any liability increase for 12 months and the Government hopes this will remove at least one barrier deterring investment.
It will be interesting to see what improvements qualify for the relief.
Examples mentioned include adding more rooms to a hotel, expanding a factory or installing CCTV or bike sheds.
Unlike Scotland therefore, this relief appears to be targeted on improvements such as extensions and not include entirely new properties; nonetheless, this provision will be welcomed.
A rates exemption from 2023 to 2035 for eligible plant and machinery used in onsite renewable energy generation and storage will be introduced. A 100% rates relief will also be introduced for eligible low-carbon heat networks that are separately assessed. The Government will again consult later this year prior to the new exemptions and reliefs commencing in 2023.
We say: There has long been criticism that business rates do not support and in fact work against the wider net zero strategy.
We will need to see the detail, but these provisions appear sensible and will be widely supported.
The Government has confirmed that it does not intend to remove any of the rate reliefs currently in place. They believe the reliefs play a vital role in ensuring the fairness of the tax.
We say: The high number reliefs indicate a system that needs to be redesigned.
Furthermore, the range of reliefs significant add to the complexity of the business rates system.
The Government has again confirmed that it will implement a 3-yearly cycle for business rates revaluations starting from the 2023 Revaluation. Consequently, the following revaluation will occur in 2026. The Government confirms this represents a fundamental improvement to the fairness of the system.
However the Government does not propose to shorten the 2-year period between antecedent valuation date (date from which rental values are used) and revaluation.
We say: More frequent revaluations will ensure that rateable values are more responsive to changing rental values and economic circumstances and will be supported by most ratepayers.
However some ratepayers wanted the Government to go further and introduce annual revaluations.
We are disappointed that the period between the antecedent valuation date and revaluation could not be shortened, even if only for the 2026 Revaluation, in order that rateable values remain as up to date as possible.
In Scotland, the period between valuation date and revaluation has been shortened to 12 months whereas in Northern Ireland it has been confirmed at 18 months for the 2023 Revaluations.
As part of its spending review, the Government has allocated an additonal £500 million for the Valuation Office Agency (VOA).
We say: This additonal resource is required to implement the changes required for 3-yearly revaluations.
It further confirms the Government’s intention to introduce the changes given the significant investment required in IT infrastructure and VOA digital capabilities.
Ratepayers will be required to notify the VOA of any changes to the occupier and/or property together with providing rent and lease information (or trade information if required for valuations). These new duties will be phased in during the 2023 Rating List and will be accompanied by a new compliance regime which will also include a “light-touch annual confirmation requirement”.
The Government will consult further on these requirements.
We say: A new significant and costly administrative burden on all ratepayers, especially for those with a significant number of properties.
Ratepayers will effectively be maintaining the VOA data and will have to declare that the data held is accurate.
These requirements bring business rates more in line with other forms of tax where taxpayers have to provide or declare that information provided is accurate.
Failure to do so or providing inaccurate data leads to fines and other penalties.
The data currently held by the VOA is often inaccurate and there is currently no requirement on ratepayers to point out the inaccuracy.
This will change and may lead to liability increases where historic improvements or changes of use were previously overlooked.
The Check Challenge Appeal system will be changed from the 2026 Revaluation. The Check stage will be scrapped. Compiled list Challenges seeking to reduce the new 2026 Rateable Values following the revaluation will have to be submitted by 30 June 2026 and a new statutory deadline for the VOA to resolve compiled list Challenges introduced.
We say: Scrapping Checks makes sense since ratepayers will be required to declare that the VOA data held is accurate and will also significantly reduce the time taken to resolve any rateable value issues.
The deadline to submit compiled list Challenges is extremely onerous particularly for ratepayers with significant number of properties.
Currently Challenges must include details of why the assessment is excessive, all arguments, evidence and any case law being relied upon.
No new issues or evidence can be introduced thereafter.
Key to making the new compiled list Challenge deadline work is greater transparency of evidence used to determine the rateable value, early availability of draft assessments prior to the 2026 Revaluation and relaxation of Challenge contents.
The Government will legislate to clarify that factors arising from legislation, regulations, licencing changes or guidance are not in scope to qualify as a material change of circumstance.
We say: The Government threatened to review what qualifies as a material change of circumstance (MCC) which should be reflected in an amended rateable value.
This followed ratepayers’ understandable response of lodging significant numbers of MCC Checks following the three COVID-lockdowns during 2020 and 2021.
The latest clarification will come as a relief to many ratepayers since internal and external MCC’s will continue to qualify.
For example building works, roadworks, new developments, etc. will continue to be viewed as an MCC.
Greater transparency on rating valuations will be implemented in two stages:
- Phase 1 – release of improved guidance on valuation approach will be in place before April 2023
- Phase 2 – analysis of rental evidence used to set rateable values will be available for the 2026 Rating List.
Details of the rental evidence will have to be requested from the VOA. Ratepayers will be able to submit their request separately from and prior to the Challenge process.
The Government will consult further on implementation.
We say: The availability of rental evidence used to determine a rating assessment is vital.
Unlike other taxes, where the liability is derived directly from the information provided by the taxpayer, rateable values are assessed using information not available to the ratepayer.
Consequently, the evidence used must be made available for ratepayers to satisfy themselves that their assessments are reasonable.
Currently the only way to access this VOA information is to lodge a Check Challenge Appeal.
All ratepayers will welcome these transparency proposals.
The current transitional relief scheme will be extended to 2022/23 for small and medium businesses restricting liability increases to 15% for small properties (RV up to £20,000) and 25% for medium properties (RV below £100,000), subject to subsidy control limits.
We say: This will impact relatively few properties, but where applicable the provisions will be welcomed by the impacted ratepayers.
The Government recognised the strong response in consultation that transition should be scrapped where it prevents ratepayers from receiving a fall in liability following a revaluation i.e. downwards transition.
Furthermore, it acknowledged that due to the shorter revaluation cycle after 2023, the transition scheme needs to be redesigned.
The Government will therefore issue a consultation on transition in 2022 and confirm a new scheme in Autumn 2022 ahead of the 2023 Revaluation.
We say: Our early research into the impact of the 2023 Revaluation suggests it will be the most significant redistribution of rates liability between sectors since 1990.
With only 3 years for any transition scheme to unwind and the unfairness of downwards transition, ratepayers will welcome a new transition scheme that addresses their concerns.
In the previous issue of 'Let's Talk Business Rates':
Given the ongoing impact of COVID-19, the Budget was keenly anticipated in the hope that the Government would confirm continued financial support for individuals and businesses adversely impacted. Many feared that various tax rises would also be announced to begin the process of paying back recent Government borrowing.
Within this edition, we look at the specific announcements concerning business rates and examine how the changes might be implemented.
Extension of Rates Relief
The current Expanded Retail Discount offering 100% rates relief was due to end on 31 March. The Chancellor confirmed this 100% Discount will now continue for eligible retail, hospitality and leisure properties from 1 April to 30 June.
A lower 66% relief will apply from 1 July to 31 March 2022 for properties that were required to be closed on 5 January 2021. However, this lower relief will be subject to a £2 million cap per business. Amongst eligible properties, there have been those like essential retail that have been allowed to open during the current lockdown, and in those cases the cap for the lower relief will be limited to just £105,000 per business.
The lower additional rate relief from July, will assist many ratepayers who will hopefully be trading by 1 July even though the caps appear modest, especially for larger ratepayers.
The Government has instructed billing authorities to provide ratepayers an opt out mechanism for those businesses not wanting the Expanded Retail Discount from 1 April 2021.
What about Non-Retail, Hospitality and Leisure?
There continues to be little or no Government financial support for ratepayers outside of retail, hospitality or leisure sectors faced with unaffordable business rates bills.
The only recourse for the majority of ratepayers not eligible for relief, is to pursue a rateable value reduction via a material change of circumstance appeal. If successful, ratepayers will be entitled to backdated refunds.
However, resolving rating appeals takes a significant amount of time, just when many ratepayers urgently need financial support.
Businesses Paying Back Rates Relief
Several businesses including essential food retailers have paid back relief. Many of the same businesses have also announced that they do not want any rates relief from 1 April.
The Chancellor confirmed the Government will legislate so any rates relief repayments will be deductible for corporation tax purposes. Consequently, from a corporation tax perspective, those businesses will be viewed as having paid their business rates.
New-Year Rate Demands
The Government previously requested that billing authorities delay issuing their 2021/22 rate demands until after the budget.
We understand that councils will start issuing rate demands for properties outside retail, hospitality and leisure sectors quickly and expect new-year instalment payments to commence in April.
However for those properties eligible for relief, we expect that ratepayers will have to apply for relief from 1 July and declare that they have not reached the £2 million or £105,000 cap.
The Chancellor announced Restart Grants to assist businesses reopening their premises.
The grants will be up to £6,000 per property for non-essential retail and up to £18,000 per property for hospitality, accommodation, leisure, personal care and gym businesses.
What about Scotland, Wales and Northern Ireland?
The Budget only applies to England since business rates is a devolved power.
Prior to the Budget, the Scottish Government announced a 3-month extension of rates relief for much of the retail, hospitality and leisure sectors from 1 April to 30 June. They later extended this relief further to 12 months. However the 12-month extension required extra funding and could only be given if the Chancellor announced a similar extension in England (additional funds would then be allocated to the devolved Government via the Bartlett Formula).
It will be interesting to see if the English relief extension provides enough additional funding for Scotland to fund their full 12 months relief. If not will the Scottish Government have to follow England with a limited relief from July.
The Welsh Government received sufficient extra funding and extended rates relief for the whole of 2021/22 for the retail, hospitality and leisure sectors. The only exception being retail properties whose rateable value is £500,000 or higher.
For more information on the services we provide and how we can help mitigate your business rates liability, please get in touch with a member of our business rates team.