Preparing for the new rating cycle

The rateable value of a property is based on an estimate of its rental value, and rate bills are calculated by multiplying the rateable value by the uniform business rate (UBR). Over time the values of different types of property and different locations will change relative to each other. The purpose of a rates revaluation is to redistribute the burden of business rates to align them with changes in property rents.

The government has produced statistical analyses showing the general movements that are anticipated in rate bills. The statistics show that offices and retail premises are likely to show the largest increases, with London and the South West worst affected, while industrial premises and those in the Midlands are likely to benefit financially from the revaluation. However these general figures will mask wide differences between individual towns and market sectors.

The revaluation will take effect on 1 April 2010, and the new rateable values will be based on rental values at 1 April 2008. Occupiers will have the right to appeal from April 2010, when the Rating Lists go live, and there are rumours that the Valuation Office is expecting large numbers of appeals, as occupiers look for opportunities to reduce their bills. Appellants will have to show that the new valuations are excessive either by comparison with the rental value at April 2008, or with rateable values for other premises.

The difficulties in the economy in early 2008 are well documented, following the collapse of Northern Rock in late 2007. The impact on commercial property rents is less clear but transactions were thin on the ground in early 2008 and Valuation Officers may face some difficulty in finding open market evidence to support their opinions. Therefore, even where rateable values are reduced as a result of the Revaluation, occupiers should consider the merits of appealing. Appeals will be determined by reference to open market rent levels in April 2008 and this is an absolute test, regardless of the historical liability.

In England the larger increases or decreases in bills will be phased in under a scheme of “transitional relief”. The details are subject to consultation at present but it is anticipated that there will be an annual cap on both increases and reductions in rate bills. If the scheme follows the Government’s preferred option there will be different caps for increases and reductions and for large and small premises. Whilst giving welcome relief to those adversely affected by the revaluation this adds a further level of complexity to the calculation of rate bills and occupiers will find it difficult to predict their bills for next year, to take account of changes in rateable value and UBR and adjustments under the transitional scheme.

We expect the Government to publish its preferred scheme for relief in England before Christmas and the UBR for next year is likely to be announced at about the same time. There has been no relief in Wales since 2005 and no proposals have yet been published for Scotland or Wales for 2010 and beyond.

The publication of the valuations in October will give ratepayers six months to seek advice on the new figures and the impact for 2010 budgets. Businesses looking for advice should be wary of unqualified rating advisors offering their services. Rating Surveyors who are members of the Royal Institution of Chartered Surveyors or the Institute of Revenues Rating and Valuation are well placed to give comprehensive advice. In addition to undertaking appeals they can advise on all aspects of the rating system, including provision of forecasts enabling clients to budget accurately for the changes.

At Vail Williams we have an experienced team of Rating Surveyors who are advising their clients on the timetable and process of the rating system. We believe that many companies will be adversely affected by the changes and our team is ready to help guide them through the various stages of the rating cycle.