In November 2022, the Valuation Office Agency updated the rateable values of all non-domestic property in England and Wales. The revised rateable values take effect from 1 April 2023.

Ahead of that time, we go back to basics ….

Who?

The Valuation Office Agency (‘VOA’) is an executive agency of HMRC and is tasked with providing the Government with the valuations and property advice needed to support taxation and benefits.

The VOA uses valuation methods approved by the Royal Institution of Chartered Surveyors to produce ‘rateable values’ (RV(s)) which are then used to calculate business rates.

What?

Business rates (also known as ‘non-domestic rates’ or ‘commercial rates’) are a tax fixed by the Government (with the VOA’s input and guidance) calculated with reference to the RV of non-domestic properties consisting of land or buildings that are not specifically exempt from rating.

In general, business rates are paid by occupiers of properties or the owner if the property is unoccupied (although the occupier and the owner are often one and the same).

Local authorities have a statutory duty to collect payment of business rates. Around fifty percent of revenue collected is retained by local authorities which is then used to help pay for local services and funding. There is therefore an incentive to them to ensure effective collection.

Business rates are calculated by multiplying the RV of a property by the ‘business rates’ multiplier (either the standard or the small business multiplier which is set by the Government).

The RV is generally the annual rent a property could have been let for on a set date. As well as the market value, consideration is given to physical factors including the location, type, size, and layout of the property. Changes in the local area, e.g., a new housing development adjacent to a shopping precinct, may also impact this.

Any rate reliefs which the occupier or owner may be eligible for (e.g., small business rate relief, charitable relief, empty property rating, etc.) are then applied before a final figure is arrived at.

When?

The most recent revaluation came into effect in England and Wales on 1 April 2017. This was based on RVs from 1 April 2015. The Government had intended to have a revaluation in 2021 based upon values in 2019. However, this was delayed until this year, a move which came under some criticism given that the revaluation would have then been six years in the waiting.

The business rates revaluation 2023 takes effect from 1 April 2023 and is based on RVs from 1 April 2021. The Government considered that this date would better reflect the impact of the COVID-19 pandemic as opposed to the initially intended date of 1 April 2019.

Where?

England only. Business rates are devolved in Scotland, Wales, and Northern Ireland and dealt with by their respective Governments. For example, whilst the Welsh Government uses the VOA’s RVs, it applies its own multiplier (being 0.535 for the financial year 2022/23 with the expectation that it will be frozen the following year).

Why?

The current RVs are based on rental levels prevailing seven years ago. The new RVs will reflect changes in rental values between 2015 and 2021.

The Government has pledged to reduce the overall burden on business, improve the current business rates system and to consider more fundamental changes in the medium-to-long term. As part of this pledge, the Government has confirmed its commitment to reform of the business rates system by delivering more frequent business rate revaluations – it is important that changes in economic conditions are fed through more rapidly into business rates liabilities and that RVs remain reflective of the property market. The next revaluation is therefore expected in 2026.

There have been significant changes to business rates following the 2023 revaluation. In the retail sector, decreases in liability have been seen, whilst other properties in parts of the logistics and industrial sectors have seen increases.

A rise in the RV does not always mean that a business rates bill will go up by a similar amount. The RV will still be multiplied with the ‘business rates’ multiplier and eligible reliefs will still be applied. The Government also announced a package of rates relief for business as part of its 2022 Autumn Statement which included freezing the ‘business rates’ multiplier for another year and introducing extended and increased relief for retail, hospitality, and leisure businesses.

Local authorities are already gearing up for annual billing and the revaluation will inevitably see an increase in appeals pursued, particularly when the list goes live on 1 April 2023 (there are ratepayers who have already taken steps to challenge a new listing). This will particularly be the case because England was in lockdown on 1 April 2021, which will increase the opportunity for businesses to challenge their RVs.

Paul Luukas

Greenhalgh Kerr is the leading recoveries law firm specialising in the finance and local authority sectors. We act for 85 councils across England & Wales collecting business rates, council tax and providing expert advice on problematic cases. Get in touch with one of our key contacts today.