England And Wales Rates Revaluation Analysis

It’s the review that’s supposed to happen every five years, but this time around, it’s took seven years as it was postponed until 2017.
The time has arrived for the Valuation Office Agency (VOA) to reassess the 1.96 million non-domestic premises around England and Wales to produce the latest draft Rating List, determining the business liabilities of every business across England and Wales.
…For the next five years!

For those who have only been in business since after 2008, your business rates are based on the 2010 valuation by the VOA. They review the Ratings list of all non-domestic premises every five years.
The business rates you pay are based on:
·         Your industry
·         The cost of plant machinery and necessary operational equipment
·         Your property price
·         Lease cost

Problem is…

The current business liabilities are based on post-recession property rates that have fluctuated massively between 2008 and 2015. The rates are valued two years predated; therefore the rates coming into effect on 1stApril 2017 will be based on the valuations from 2015.
Confused?
Here’s what happens….

The business rates payable are based on the properties Rateable Value two years prior to the Rates Revaluation that the VOA is supposed to conduct every five years.  
This time around, it’s far more significant than usual because this Rates Revaluation has taken seven years and come post-recession andpost-Brexit. Businesses are looking for clarity while the government is looking for money.

Businesses Fund Communities

The rates paid through business liabilities are split 50/50. 50% go to central government, the other 50% to the Billing Authority (local council) which it retains for funding community projects.
The system has been described as being broken because it results in rich areas keeping more money, with the poorer getting worse because of a lack of investment. Many areas have witnessed the effects of this scheme when high street stores collapsed, causing a ripple effect across communities when local authorities faced financial strain and severe budget cuts.
The other 50% of revenue though is pooled by the Central Government and then used to fund poorer communities through Government Grant Schemes. In former Chancellor’s George Osborne’s last budget announcement, when he described the “biggest transfer of power to our local government in living memory”, he was talking about changing the 50% split to allow for local authorities to retain all revenue collected. That would result in even more mayhem to an already chaotic system, so how the funds are to be split are still in discussion, but what’s not is that there are…

Huge Changes Ahead (and not many signposts)

Every business in England and Wales is going to be affected. It’s estimated that the majority of smaller businesses will see a slight fall in their liabilities, but on the other hand, there will be a 9% increase to the business rates on a national scale.
How does that work?

London Foots the Bill!

That’s right…
The vast majority of communities are going to see slight falls to business rates; however, because London has significantly higher rental charges due to higher property prices, the operational costs for retailers are going to be substantial, as high as a 415% of an increase for stores operating on Dover Street, Central London. 
The vast majority of stores in that area are multi-channel retailers and also regional with some operating globally. The increases will put financial strain on profit margins, and given some are chains, it will in all likelihood take a ripple effect. Retailers will need to protect their margins, which could see the less cost-efficient stores in other local areas either close or relocate.
The retail sector has changed substantially over the past seven years. The postponement wasn’t welcomed in 2010, and the repercussions to the business community certainly won’t be welcomed this time around.
British Telecom has already announced they will be challenging the Rates Revaluation by the VOA, as the firm will be hit with a 350% business liability increase, up from £165M per year to £743M from April of next year. An increase that BT says has forced them into threatening to increase consumer broadband prices around the London area and cut investment in telecoms technology.

Available Relief for SMBs

·         Business properties with a Rateable Value of £12,000+ have to pay the rates. Under that Rateable Value, the rates won’t apply.
·         Tapered relief will be available for properties valued between £12,000 and £15,000 so smaller sized firms will be able to get some relief from the rates.
·         Between 50% and 100% relief is available to local business owners operating in a local community with a population of <3,000.
·         Up to 80% relief is available to charities and sports clubs
·         Businesses operating within Enterprise Zones, are empty or newly occupied can apply for relief, although that’s not to say the application will be approved. It will only be considered.
The only exception to the Business Rates is religious properties, and agricultural land.

Priorities Now!

The priority for every business owner between now and April of 2017 should be on risk assessment because there is a huge risk of financial interruption when the new rates come into effect on April 1st 2017.
As there are going to be winners and substantial losers, with the cost of doing business based on the new rates remaining in place for the next five years, there will be a transitional period for businesses to benefit from staged rate increases. It’s not going to make it any less of a financial burden because the bill will still need paid, but there will be assistance available for those with higher than anticipated increases to their business rates.

As all business owners will be affected either positively or negatively, it’d be beneficial to open discussions between tenants and landlords to begin negotiations of property lease prices in light of the business liability rate changes due to come into effect in the next six months.