A new rating assessment is due for all commercial properties in April 2017. This will include many diversified farm businesses, although some are eligible for small business discounts or exemptions, explains chartered surveyor and diversification specialist Barry Davies of Davies & Co.
In England and Wales the Valuation Office Agency (VOA) has been conducting the revaluation from April 2015 to date. The rateable value (RV) of a commercial business is based on the open market rental value as at 1 April 2015.
Draft RVs were published on the VOA website on 30 September 2016. There is no obligation on local authorities to inform business owners in writing of their new valuation or likely rates bill. Some local councils are contacting rate payers, others are not.
The draft RVs can be found on the Defra website on the Find and check your business rates valuation page, click on “start now” and then enter your postcode on the next page, headed “Find a property”
Once you have found your proposed 2017 draft RV:
- Ensure that the description of the commercial property is correct: farm shop, offices, leisure attraction, etc.
- Ensure that residential property is not included in the property description as these are subject to council tax, not business rates.
- Ensure that there is a direct correlation between the description of the property and the VOA method of valuation, for example, a farm shop should be valued on price/unit area £/sq m.
What is the business rates system and why is there a revaluation?
A revaluation usually happens every five years; the most recent in April 2010. Government changes meant that the next revaluation is April 2017.
The VOA advises local councils of the proposed RV for 2017. The council then calculates new business rates bills from 1 April 2017 on the basis of the multiplier set by central government annually. This is currently 49.7p in the pound, slightly less if a property benefits from Small Business Rates Relief (SBRR). The multiplier for 2017-2018 is expected to be 48 pence in the pound. Example – Rateable Value: £40,000 x 48p (multiplier) = £19,200 (rates payable)
The council currently retains 40% of rates paid. However the government proposes changing this to 100% by 2020, estimated to be worth more than £26bn to councils.
Small Business Rates Relief (SBRR)
SBRR was introduced in 2005 to help small businesses. Relief is only available to rate payers that have one main property in England who will then have their rates bill calculated using the Small Business Non-Domestic Rating multiplier.
Under the current assessment, eligible properties with an RV of £6,000 or lower will be entitled to 100% relief. This threshold rises in April 2017 to £12,000 when RVs from £12,000 to £15,000 will receive tapering relief.
Agricultural Exemption – farm buildings occupied together with agricultural land and used solely in connection with agricultural operations on that land, as long as they are surrounded by an area of at least 2ha of agricultural land, are fully exempt, as is farmland.
How is my rateable value assessed?
Two primary valuation methods are used:
1. Rental value – based on open market rental value in £/sq m. Each commercial building and land area is measured (the VOA term is “referenced”) and the value attached. This would apply to leisure; restaurant, gift shop, car park, and other uses, for example, storage, offices, light industry, etc.
For example – commercial offices may be valued at £20-£25/sq m, a café/farm at shop £65-£75/sq m.
2. Financial – this is based on your financial accounts for the three years 2013-2015 (inclusive), a full receipts and expenditure analysis to ascertain profitability (or loss), to arrive at a fair and reasonable rent to be paid to the landlord – this is the RV.
Other important factors that must be taken into account by the VOA are:
- Historical planning permissions, they may have onerous conditions restricting the business and so could be used to argue that a lower RV should be applied
- Location of the commercial premises, for example, road infrastructure changes such as a bypass
- Truly comparable evidence – similar business operations
- Seasonality of business
Who/what type of business is likely to face the largest increases and why?
The VOA produced statistical releases, most recently on 6 October 2016, showing that offices and industrial uses would be affected by the highest percentage of increase in RV, ranging from an 8% to a 23% increase.
I consider my RV too high – how do I challenge it?
Any challenge of your RV before 31 March 2017 is informal but may be worth pursuing because it could be quicker and cheaper than waiting for the formal appeals procedure to be available.
Grounds for challenge include the factual information used by the VOA being incorrect for example, the description of the property, area of buildings or turnover of the business. Where any of these is the case, you should notify the VOA, preferably by email, and request a revised assessment.
Such a request made between 1 October 2016 and 31 March 2017 is not a formal appeal – only after 1 April 2017 can a “Check, Challenge, Appeal” be made.
If there is no detail on the VOA website of how your property has been valued, you can request details in writing. A rating surveyor can help determine whether your valuation is high and/or give clarity on the method of valuation.
Details of the appeal process are on the government website.
My non-farming business has never been assessed for business rates and is not included on the VOA website – what should I do?
Liability to pay business rates is the responsibility of the occupier of property. Councils actively source and review commercial properties where no rates are being paid. If you have any concerns, contact your local council’s non-domestic rating department.
If the diversified element of your farm business is deemed subject to business rates and it has been operating for some time without having been assessed, it is possible for back rates to be charged, but this can only be from 1 April 2015.