Rates: Transition and change leaves taxpayers worse off
Following the publication of the Valuation Officer’s draft rateable value assessments for England & Wales at the end of September some businesses may be forgiven for expecting some relief from business rates having waited nearly 7 years since the last revaluation in April 2010. They were sadly mistaken.
Rating specialists Montagu Evans warns that those experiencing the greatest increases in assessment may need an increase of over 300% in order to gain the full protection of ‘transitional relief’ in England while those hit hardest by recession will, in the worst cases (over £100,000 RV), see decreases in liability limited to about 25% up until April 2022.
The annual phased decrease will range between 4.1% and 5.9% over 5 years, gross of an inflationary adjustment each year.
“Upward transition or ‘phasing’ follows a very steep incline over the next 5 years. For properties with an assessment of in excess of £100,000 the first year increase will be 42% plus inflation in 2017-18,” Richard Wackett a rating expert in Manchester said.
“This will hit London in particular where retail assessments overall have climbed on average by 26.8%’’.
At the opposite end of the spectrum those retailers in the northern cities who were expecting a fall in liability of an average of 6.5% (and more in many cases) will only get the benefit of a decrease in rates of less than 4% during the new financial year.
“Our analysis reveals the damaging effects of a delayed revaluation which means for those in secondary northern towns will still be tied to pre-recessionary markets. There is little or no relief,” said Wackett.
Rateable Values at this year’s revaluation are supposed to represent rental values at 1 April 2015. The valuation date at 2010 was 1 April 2008. In 2012 the Government decided to suspend the revaluation due in 2015 for political reasons and this has not helped the SME retail sector’.
Transitional adjustments will only apply to England at the revaluation. Both the Welsh and Scottish Parliaments have decided not to phase changes at the revaluation. “This in itself creates mischief either side of the borders,” said Wackett. “The problem is that large benefits and decreases are realised immediately in other parts of the UK and companies operating across national borders will need to budget very carefully.
The example of the Springbank whisky distillery at Campbeltown in the west of Scotland illustrates the potential discrepancy. The rateable value is due to increase by 53% at 1 April this year. Because there are no plans for transition in Scotland the rate liability in 2017-18 will be almost 40% higher in Scotland than it would have been for the same business were it based in England.”
Elsewhere in England accountants are anticipating some very large rateable value increases affecting large estates particularly in the health, education and leisure sectors. “Health and education appear to have been hard hit at the revaluation,” Wackett continued. “The public sector will need to pay the treasury quite a lot more in rates where assessments run to several hundreds of thousands or even millions because of the vagaries of transitional increases. Restaurants in all of the major English cities have also been hit hard by RV increases averaging 16% (35% in London) and no transitional relief”.
Transitional relief only applies to England and is a self-financing adjustment that has been applied to rate liabilities at each revaluation since 1990. Transition is designed to limit large overnight increases following a general re-assessment. “The problem is that while increases are ‘limited’ they are paid for by phased decreases. Those worse off suffer from historic rental levels.”
“The effects of the revaluation has, in many cases, been blunted by statutory transition. Ratepayers should be aware that in order to impact their liabilities in 2017 and beyond, particularly in downward phasing, early attention under the current (2010) rating regime could be beneficial as a means of reducing the base liability, although care and attention is required under the complex charging rules,” Wackett concluded.
Montagu Evans has produced a briefing note which summarizes the effects of transition in what continues to be a complex tax regime for occupiers and the owners of empty commercial properties.
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