Business Rates Revaluation

On Friday, the Government published a draft rating list containing revaluation details for 1.96 million non-domestic properties. The changes will come into effect on 01 April 2017 and are likely to have a significant impact on the fortunes of businesses throughout the country – including in the South West.

UK businesses pay business rates on their premises, which often represent their third biggest overhead after rent and salaries. Business rates are calculated by reference to the rateable value of a property and a ‘multiplier’ which is linked to the size of the business.

From 01 April 2017 the Valuation Office Agency, which is responsible for setting rateable values, will be introducing the first change in business rates since 2010. The rates will be tied to the underlying rental values of the property at the valuation date, which for the purposes of the revaluation, will be 01 April 2015.

It is estimated that, across the UK, average rateable values will increase by 4.7%. However, this headline figure is heavily impacted by an estimated 26% increase in London rates. Retailers, such as Jimmy Choo and Alexander McQueen, are likely to see their Dover Street rateable values increase by an eye-watering 415%. Transitional provisions will apply, limiting how much rates can increase or decrease over the coming years, but there are still likely to be big changes for many businesses.

The position in the South West will probably be rather more positive. Whilst the perception remains that the South West market has generally been well insulated from the volatility of the wider UK market (and the South East in particular) there may still be significant changes, particularly for retailers, who are expected to see some of the biggest falls in rateable values.

A report carried out by Colliers International suggested that:

“Of the 421 retail centres monitored, 324 witnessed a decrease in rental values; 76, mostly in London and the South East, have seen an increase; and only the remaining 21 have stayed the same.”

The report also anticipates that the rates revaluation could be good news for South West businesses, with rateable values estimated to have fallen between 2008 and 2015 by approximately 28% in St Austell; 22% in Penzance; 25% in Taunton and as much as 45% in Torquay.

Case Study: Rateable Value Changes in Exeter, St Austell and Truro

To see what impact these changes will have on local businesses, I decided to compare the 2017 draft valuation to the current figure for retail premises in Exeter, St Austell and Truro – the three locations where Stephens Scown are based.

The results suggest that businesses in all three locations will see a big reduction in their business rates from 01 April 2017:

1.    In Exeter, a 110m2 retail property close to the High Street will have its current rateable value of £32,250 reduced to £21,250 – a decrease of 34%

2.    In St Austell, a 380m2 retail property in White River Place will have its current rateable value of £71,500 reduced to £51,500 – a decrease of 28%

3.    In Truro, a 140m2 retail property in Boscawen Street will have its current rateable value of £47,500 reduced to £37,000 – a decrease of 22%

Clearly these are significant reductions, which will mean that many local businesses will be paying much lower rates from 01 April 2017 onwards.

Next Steps for Landlords and Tenants:

·         Your first step should be to check the revised rateable value for your business premises using the Government’s online calculator. This will show if there is likely to be a change and what impact this will have on your business rates.

·         It is important to consider the wider impact of the rate changes on your business – BT have indicated that they expect the cost of broadband services to increase next year as a result of the company’s annual rateable valuation increasing from £165m to £743m. Conversely, a decrease in business rates will be good news for many businesses.

·         The rate changes will have significant implications for the amount of Statutory Compensation payable by a Landlord to a Tenant when it wishes to end a tenancy under which the Tenant has security of tenure. The amount of compensation payable is linked to the rateable value of the property on the date that a Landlord’s notice or counter-notice is served upon a tenant. Any change in rateable values coming into effect on 1 April 2017 – whether upwards or downwards – should influence a Landlord’s decision on when to serve a notice, because this will directly impact the Statutory Compensation payable. Please contact us if you have questions about how this will affect you.

·         If you aren’t happy with the rateable value attributed to your business premises, you may wish to consider appealing. It is hoped that a new policy of “Check, Challenge, Appeal” will give rate-payers, and small businesses in particular, more scope to appeal against excessive business rates.

The Future of Business Rates

The Government controversially delayed revaluing rateable values in 2013 on the basis that the fall in UK property prices would slash revenues.

However, there is widespread concern that by delaying the rate revaluation the Government has exacerbated the strong growth in rental values in the South East and perpetuate decreases in depressed areas.

Given the relative volatility of the UK market over the last 15 years there have also been calls for the government to introduce more frequent revaluations to ensure that businesses are paying accurate rates.

“Making the business rates system fairer will encourage independent retailers to expand and invest in their business so this is definitely a step in the right direction.” Paul Baxter, Chief Executive of the National Federation of Retail Newsagents

In the meantime, the rate revaluation is likely to be good news for many businesses throughout the South West.

To discuss this or any other issue call 01392 210700 or