Rates liability is often one of the biggest costs of running a business. Not all ratepayers may be aware, however, that they have a legal right to appeal against their rating assessment and if an appeal is successful, rates savings will often follow. When rates are paid Business rates are taxes levied on commercial properties by billing authorities on behalf of central government, which redistributes the total fund back to authorities throughout the country according to need. Rates demands are issued by billing authorities to ratepayers at the beginning of each rating year on 1 April. Ratepayers have the opportunity of paying their liability in ten consecutive monthly instalments; usually a more popular method than a single annual payment. Empty Rates Where offices are unoccupied, a liability to empty rates falls on the person who has the right to possession, i.e. normally the owner for newly constructed buildings, or the tenant once the premises have been let. Offices unoccupied for a period not exceeding three months have full exemption from rates. Following that period, empty rates are now due at 100% of the occupied charge while the property remains vacant. Billing authorities have discretionary powers to reduce liability where a property is partially vacant for a short time and there are also various exemptions to empty rates, perhaps the most important being that empty rates are not payable on buildings that have listed building status. Charities automatically receive 80% relief and this can be topped up to 100% at the discretion of the Billing Authority. There are, however, ways of mitigating your liability but this is where you should seek professional advice from a qualified surveyor as this is an increasingly complex area of rating practise. Additionally for 2010-11 the Government is granting 100% empty rate relief for the entire year to all empty properties with a rateable value under £18,000. From 1 April 2011 this limit will revert to £2,200 rateable value. The liability Apart from any reliefs that may be appropriate, rates liability is calculated by multiplying the rateable value of the property by the uniform business rate (UBR) for the appropriate year and applying the resulting product to the period for which the ratepayer is liable. The principal exception to this simple calculation is the effect of the transitional capping arrangements, noted below. The rateable value for a property is the value assessed by the Valuation Officer (an agency of the Inland Revenue) whose duty is to compile rating lists for each area and to ensure that these lists are kept up to date. Subject to certain assumptions, the rateable value is intended to represent rental value as at a given date, known as the antecedent valuation date (AVD). To ensure that this tax base remains reasonably current, national revaluations are carried out at five year periods with the last being effective 1 April 2005. The AVD is a date two years before the beginning of a rating list so the current 2005 rateable values are based on valuations as at 1 April 2003. The next Revaluation comes into effect on 1 April 2010, with an AVD of 1 April 2008. The other part of the liability equation is the UBR and this is a nationally set rate that increases with inflation each year except at a time of Revaluation. The UBR in England for this year 2010/11 is 41.4p (41.8p in the City of London). Transition Transitional capping relief is intended to ensure that no ratepayer’s liability following a revaluation differs by more than given percentage limits, compared with liability before the revaluation. The arrangements are complex and there are different capping levels depending on whether the property is ‘large’ or ‘small’, whether the phasing is going upwards or downwards and to add further complications, Scotland is yet to announce its scheme fpr the 2010 Valuation Roll and there is no transition in Wales. The transitional arrangements for the 2005 Rating List ended on 31 March 2009 so that no properties in the UK are affected by it in the final year of this list. The transitional arrangements for the new 2010 List allow liabilities to increase by a maximum of 12.5% (or 5% if a small assessment) in 2010-11 and decrease by 4.6% (or 20% if a small assessment). These increases/decreases ignore the new Crossrail Levy which will apply to all properties in Greater London with a rateable value in excess of £50,000 and will apply at 2p in the pound. Small Business Relief A business can apply for Small Business Rates Relief (SBRR) if the aggregate of the rateable values of its properties is below £18,000 (£25,500 in London)and also only one property is assessed at above RV £2,200). The relief is 50% for RVs up to £5,000 reducing on a sliding scale to nil for RVs over £10,000. Businesses that qualify for SBRR are also charged at a lower level of UBR - currently 0.7p less. Why appeal? The regulations that accompanied the 2010 revaluation are similar to the 2005 regulations in that there are no longer restrictions on backdating agreements to the beginning of a rating year. Apart from appeals on the question of the valuation basis of a property, rate liability can be reduced following successful appeals where, for example an occupier suffers disturbance either within or adjacent to his building from demolitions, roadworks, etc and if part of a property is vacated, even for a short time, savings in liability may be possible provided the correct advice is obtained at the appropriate time. In summary, appeals should be made to ensure the minimum level of liability. As with any tax, you should consult a professional advisor, in this case a qualified surveyor, to ensure you are paying the correct amount and to agree whether an appeal is appropriate in any case. If you require any further information concerning the revaluation you may wish to check out the Valuation Office web-site www.voa.gov.uk. Alternatively, contact me at shile@geraldeve.com. Looking ahead Many office occupiers in Central London are facing significant increases in liability beyond April 2010 when the next Revaluation comes into effect, based on April 2008 rental values. These rental values are significantly higher across central London than the levels of value applied by the Valuation Office Agency on the 2005 list, in some cases up to 130% higher than the 2005 Rateable Value leading to a doubling of liability over the coming years. The challenge for advisors will be to demonstrate that April 2008 was not the peak of the market and that rental values were falling from the end of 2007. Prepared by Steven Hile BSc(Hons) MRICS, IRRV Partner, City Offices, Gerald Eve LLP