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Thousands of hotels snarled up in business rates red tape

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Thousands of hotels snarled up in business rates red tape

The appeal process following last year’s business rates revaluation is a mess, and hospitality businesses are increasingly victims. Emma Lake reports

The tortuous ‘check, challenge, appeal’ process, introduced with the business rates revaluation in April 2017, has seen many hotels struggling to shift the burden of incorrect valuations, an expert has said.

Figures released last week showed that 50,880 checks (the first stage of the appeals process) have been registered with the valuation office so far over the 2017 rates issued to properties in England. In contrast, the 18 months following the 2010 valuation saw 314,130 challenges lodged across England and Wales. In total, more than a million appeals against the 2010 valuation were registered, with 91,000 still awaiting resolution.

Of the checks submitted for the 2017 revaluation, which equate to 2.7% of all properties liable for business rates, 39,660 have been resolved, 24,200 of which were agreed.

A further 6,510 have been escalated to the second, ‘challenge’ stage of the appeal process, of which 1,010 have been agreed.

The final escalation of an appeal is to go before a valuation tribunal. The government has not released details of the number of cases that have reached this stage, but it has revealed that 12 tribunal appeals have been heard and decided, with 20 more scheduled up to February 2019.

David Parker, head of rating at Savills, said the onerous and complex nature of the check, challenge, appeal process was preventing operators from submitting appeals, while a failure to keep up with the rate of appeals made against previous revaluations means mistakes are likely to be accruing over the years. This could affect operators’ cashflows and even the value of businesses.

Parker said: “We had hoped that the statistics as of September 2018 would show a
significant increase in the number of properties registered and the number of appeals initiated, but clearly this has not happened. This is inevitably due to the new system being difficult to work with and an inability of many ratepayers or their advisers to be willing to take the plunge and put forward valuation arguments to the valuation office.”

Next to no chance
The Savills director said that under the previous system operators could submit their own applications for appeal, but under the new regime they had next to no chance of even navigating the process without the benefit of advice or assistance from professionals. If an appeal is unsuccessful, it cannot be resubmitted until after the next revaluation has taken place.

Figures detailing the number of hoteliers disputing the rateable values assigned to their properties are not available, but Parker told The Caterer that the turnover-based method used to calculate rates for specialist properties such as hotels can further complicate making a case for review. In particular, this is because confidentiality means that valuations are not published and therefore it is difficult to see how or why appeals have been successful or whether other
hotels could benefit in a similar way.

Incorrect classification
Parker won a recent case where his efforts helped more than halve the business rates on an 80-bedroom Kensington hotel from £700,000 to £329,000. The business had seen its rates more than double in the 2017 revaluation from £275,000 because it had been wrongly classed as a three-star-and- above hotel, increasing the valuation office’s estimation of its earning ability.

Parker is concerned that chancellor Philip Hammond’s decision to bring forward the next business rates revaluation to 2021 could compound the problem, directing resources away from the review of appeals and resulting in mistakes being carried forward. The introduction of a formalised group pre-challenge review system – which would allow a group of properties to band together to submit an appeal – could act as yet another complication for the process.

Parker said: “The rating appeal system has become unfair and overly complicated, leaving it in need of a root and branch review. There are a large number of hotels that are likely to have been classed incorrectly and are therefore paying the wrong rates, but due to the cumbersome nature of check, challenge, appeal it’s extremely difficult for them to rectify this. We urgently need a system that is easier to negotiate and more transparent for all.

“Due to the sheer number of properties that have to be reviewed every time there is a new revaluation, there is a tendency by the valuation office to take shortcuts. This often means that turnover is relied upon for leisure properties, with not enough regard paid to profitability.

“Our concern is that the valuation office may not have the resources, the time or even the expertise to distinguish between two hotels which may have similar levels of turnover but experience very different levels of profitability.”

A Valuation Office Agency spokesperson said: “These statistics show that many
customers and their agents continue to register with our check and challenge service and claim the properties they have an interest in. Some are choosing to move on to submit checks and, if needed, make challenges, and some are not. This is how the service was designed to work.

“The previous appeals system was broken and encouraged speculative appeals – around 70% of appeals did not result in any change in valuation.”

The ‘dark art’ of classification
Paul Milsom, managing director of Milsom Hotels and Restaurants group, saw business rates for one of his hotels soar after it was classified as a licensed premises. The 14-bedroom Pier in Harwich hotel was reclassified before the
2010 valuation – due, Milsom believes, to the success of its seafood restaurant. He is still fighting appeals on both the 2010 rating and the 2017 rating, when
his rates bill rose by 60%.

pier-in-harwich-hotel

Across the five-strong group rates went up 55% in 2017 and other appeals are in progress seeking to have Milsom Hotels and Restaurants classified as an exceptional operator – something it had successfully done for the 2010 revaluation but which was not carried over into 2017.

The ‘exceptional’ classification would see the valuation office reassess its calculation on the turnover an average operator could hope to achieve, which should be used to calculate a specialist property’s business rates.

Milsom, who has described the rates process as a “dark art”, said: “It’s having a massive effect. We are paying it and we are fortunate to be in a position where we can just about afford to pay it without having to borrow from the bank. We hope we will eventually get all our businesses through the check, challenge, appeal process and agree with the valuation office or take it to tribunal.

“They have purposely made it difficult. Maybe they thought it would reduce the number of appeals, but all it has done is slow the whole process down. Some
hotels could go out of business in this period because they’re not able to get it dealt with and they haven’t got the money to pay.”

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