MT Expert - Finance: Protect yourself on business rates

Confused about the implications of the changes to business rates in a fortnight? Look no further.

Last Updated: 31 Aug 2010

From April 1st 2010, business rates will be based on new levels of rateable value, writes Roger Messenger of property consultancy Kushner. In some parts of the UK, like central London, this could mean a doubling in rates liabilities over the next five years!

For the uninitiated: business rates are levied nationally by central Government, and collected locally by Local Authorities; the aim is not to raise additional cash, but to rebalance commercial property values. The last revaluation took effect in April 2005, and the new revaluation takes effect from 1st April 2010.

Just as the rateable values for the current list (2005) are based on 2003 property values, the 2010 assessments will be based on 2008 values, not current values. In other words, this valuation was done right on the cusp of the financial downturn - which in Central London, was also the very peak of the rental market! At this stage of the economic cycle, that's the very last thing most businesses need to hear.

The total value of business premises in England rose by approximately 18% in the five years 2003-2008. As a result, there's going to be an 18% cut in the tax rate, from 48.5p/£ for 2009/10, to 41.4p/£ for 2010. So your assessment would have to be more than 18% higher than previously before you'd have to pay any more in rates.

However, although some properties (like industrial premises in the North of England) actually fell in value during the period, some offices - in the West End of London, for instance - saw increases of over 100%. So the 2010 assessment will create winners and losers - depending on the type of property you occupy, and where you're located in the country.

But how do you mitigate the nightmare scenario? Well, the Government is to cushion the full impact by imposing a 12½% maximum increase on rate bills for the current year 2009/10. To pay for this generosity to the ‘losers’, the ‘winners’ – i.e. those due reductions as a result of the re-valuation - will only see their bills shrink by a maximum of 4.6% on last year. This 'transition scheme' lasts for 5 years; maximum percentage increases escalate to 17½% in year 2, rising to 25% in year 4. Once your property reaches its full payable rate, you're no longer in transition. And thereafter, the tax rate will increase by at least the rate of inflation every year.

The good news is, you can appeal against your current assessment - but only until 31st March. You can also appeal your new assessment as of April 1st - although because of the transition scheme, the existing assessment may actually be more relevant to what you pay going forward, at least for the first few years of the revaluation. There's generally only one right of appeal for each list (although 'material change' appeals are possible). And the new list is certainly open to challenge, based on the values adopted in many parts of the country. But the key point is: if you want to adjust your 2005 value and potentially save money – time is short.  

Roger Messenger is Rating Consultant at Kushner; Remember that this briefing note is a general summary of the Rating Revaluation position, and should not be regarded as a substitute for advice on how to act in a particular case.

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