Business Clinic: Are we liable for business rates assessment?

Whether it’s a legal, tax, insurance, management or land issue, Farmers Weekly’s Business Clinic experts can help.

Here, Richie Rees, legal director in Thrings’ agricultural litigation team, advises on what to be aware of when the development of farm businesses may result in questions about business rates.

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Q: Our family farming business has experienced quite a bit of growth in recent years so our produce output is at a much larger scale.

This has meant we have had to expand our operation on the farm with more buildings to store and pack produce.

We are now being told we potentially need to pay business rates by the local council but, given it is for agricultural use, is there anything we can do to challenge this? What can we do in the meantime?

A: This is a problem we are seeing more and more in farming, which can present a significant financial challenge to agricultural businesses and their plans for the future.

Business rates are a tax on commercial properties, set by the Valuation Office Agency (VOA) and collected by local authorities.

However, there is a long-standing statutory exemption for “agricultural buildings”, providing you can satisfy one of the legal definitions set out in the statute.

Unfortunately, where successful farming operations have scaled up or diversified in recent years, the VOA has increasingly sought to exclude certain buildings used by the business from this agricultural exemption.

In particular, processing units and storage sheds are being charged with business rates on the grounds that these are not “agricultural buildings”, even where their use can be traced back to the core agricultural operation carried out by the business on the same land.

It can be quite a challenging time for any business when the local authorities or government bodies they often work closely with suddenly seem to be working against them, especially if there appears to be inconsistent reasoning that doesn’t reflect the ongoing modernisation of the sector.

Court of Appeal decision

However, there is scope to challenge such decisions, with the recent Court of Appeal decision on a dispute between free-range egg producer Fridays and the VOA that has helped clarify circumstances in which modern, large-scale operations can still seek an exemption for “agricultural buildings”.

In the case, Fridays successfully challenged the decision that its buildings used for egg packing and grading should be subject to business rates, arguing they qualified for exemptions as they were integral to the core farming activity of producing eggs for sale.

This judgment made two very clear points that farmers can use to strengthen their argument for exemptions.

First, that modern farming can take place on a larger, more commercial scale without losing its agricultural character, and second, that activities that make produce marketable can still fall within the agricultural exemption.

It is vital for agricultural businesses to take an objective view of how their properties are classified if they are to have a chance when challenging such a decision.

This means securing legal advice early in the process to ensure their argument is sound.

Even if you are able to prove your case for the exemptions, there will be an interim period before you get the decision.

It’s important to understand the difference between the VOA’s decision to rate your property, and the local authority’s power to enforce payment of the rates.

Business rates become due

Once the VOA has determined the rates that are payable for a building, the owner will be issued annual or periodic bills for the relevant sum by their local authority.

If you fail to pay a rates bill, the local authority can seek to enforce this debt and potentially get an order for payment from the magistrates’ court.

If you receive a summons to the magistrates’ court for non-payment, disagreeing with the VOA’s rating or saying that you will be challenging it is not a defence to your failure to pay the bill.

To avoid the risk of the local authority obtaining a court order against you for non-payment of rates, it is important to engage with the process early and begin your challenge of the VOA’s rating.

You should not ignore or overlook any bills received for payment in the meantime because you will be liable unless and until the VOA changes its assessment or it is overturned by the valuation tribunal.

Evidence of you lodging a challenge of the VOA’s decision would give you the best chance to delay any enforcement by the local authority, or potentially even agree a delay to the payment in the right circumstances.

Do you have a question for the panel? Outline your legal, tax, finance, insurance or farm management question in no more than 350 words and Farmers Weekly will put it to a member of the panel. Please give as much information as possible. Email your question to FW-Businessclinic@markallengroup.com using the subject line “Business Clinic”.