As you will be well aware, business rates – often referred to as non-domestic rates – are a tax on businesses and other organisations that occupy commercial premises. They are an annual contribution to the cost of services provided by local authorities and the emergency services, which is based upon the rateable value of your property, currently assessed periodically by the Valuation Office Agency (VOA).
But is the whole business rates system and, more specifically, the bureaucracy that encumbers it, overtaxing the health of UK businesses?
Significant cost to business
Following any revaluation, the VOA will publish the new Rateable Value for every commercial property across the country in a Rating List. Rates are calculated against the rateable value, which represents the rental value of a property, at around 43-45% of the rateable value. Business rates are therefore one of the largest overheads any organisation will have to pay.
On the 1st April 2010, the business rates revaluation saw the rateable values of many commercial properties rise significantly, consequently increasing property overheads for many firms across the country. The cumulative cost of rent and rates bills on top of what, for many businesses, has been a tough few years commercially, is arguably threatening the viability of companies nationwide. Indeed, it could be seen as preventing many businesses from expanding or even starting up. The results are evident in towns and cities across the UK, where many offices, warehouses and shops stand sadly empty.
Protracted appeals process crippling business finances
You may or may not be aware that all businesses have the right to ask how their tax is calculated, and to challenge it if they disagree with the valuation. In appealing their rateable value in this way, business property owners need to provide evidence to the VOA for why a lower charge is justified.
Sometimes, however, this appeals process is just too long for those in real trading difficulties. Alarmingly, business rates specialists CVS estimate that over 10,000 firms have gone bankrupt since the start of the 2010 rating list, whilst waiting for the conclusion of their appeal. This is a staggering figure, one that presents questions as to why the current business rates system is letting UK industry down in its time of need. The current rates appeals process can take up to 18 months, due to the cumbersome and bureaucratic processes at the VOA.
A more efficient solution required
A much more speedy and sensible approach would be for the Government to consider economic conditions when assessing rateable values. This would free up businesses to deliver investment and growth by reflecting up-to-date rental values in their business rates bills, and improve the efficiency of the appeals process to deliver back overpayments to ratepayers in a quicker fashion.
As Mark Rigby, CVS chief executive, suggests: “More needs to be done to make the business rates system even more responsive for ratepayers, and to allow for economic conditions to be reflected in the level of business rates paid. The government should broaden the grounds of appeal for Material Change in Circumstances (MCC). This would allow for an improvement on business rates in the short term and ensure a more accurate reflection of the current climate.”
The current system is simply not working, and arguably choking the UK economy as a result. It is too bureaucratic, both for the applicant and the Valuation Office, and results in businesses paying far too much in their business rates in very difficult economic conditions. There is a clear debate to be had about the need for change, for a move towards a business rates system that is both more logical, and most importantly, mutually beneficial to both business and the public purse.
This post was kindly written by Mark Rigby, CEO of CVS – Commercial Valuers & Surveyors “Britain’s largest business rates advisory firm” – Financial Times.