Make sure your business rates are accurately priced

14 September 2012
Make sure your business rates are accurately priced

Business rates are on the rise and in many cases out of step with market conditions. Don Baker explains how to challenge your charges

Hotels, pubs, clubs and bars are all facing hefty business rate charges. The annual increase in rates bills is running at odds with the wider economic conditions - property values and turnover are falling while business rates are continuing to rise. Leisure businesses are struggling to meet the payments and, typically, business rates are the third-highest overhead after staff costs and rent, so an overpayment of rates can be crippling for any hospitality or leisure business.

Business rates are set by the Valuation Office Agency, part of HM Revenue & Customs. The non-domestic business rating list is reviewed every five years, and each individual assessment for leisure businesses or hotels is based on either market rental values or turnover as at the antecedent valuation date - a date set two years before a revaluation. These assessments remain for five years unless an appeal successfully challenges the assessment.

Occupiers of all commercial property (including the leisure industry) are required to pay rates bills annually. The amount due is calculated by multiplying the current rating assessment for a property, as shown in the rating list, by the national non-domestic rate or multiplier which is set by central Government every year.

The problem is that economic conditions have significantly changed from the date when the 2010 list was compiled. So in many cases across the country, rates bills are out of step with true market conditions. When the 2010 list was compiled, the rateable values were set at a level of rents apparent at 1 April 2008; the antecedent valuation date. Due to the lack of rental evidence at that time, the rating assessments have been based on evidence which does not fully reflect the downturn in the economy.

This has given rise to a gap between the decrease in property values, rents and turnover over the past four years and those values used for business rates in 2008.

Occupiers can appeal their business rating assessment by challenging the rateable value (RV). Many of our clients are finding that, by appealing their RV, they are successfully reducing their business rates bill and saving money which can be usefully invested back into the business.

The most important aspect of a successful appeal is providing evidence of rents or turnover to show that the assessment is excessive. A business can also be entitled to make a further appeal which will reduce their rates bill if the circumstances around their property have materially changed - for example, if there has been increase in leisure or hotel facilities in an area, or if other physical events outside the business's control have affected the property.

Equally, if a business has had the misfortune to experience a fire, flood or other incident that has interrupted "business as usual", then it may be entitled to a reduction. Lastly, if it is known that other occupiers of commercial property in the immediate area are paying less, then there may be a precedent to secure a reduction too.

The most important thing is to interrogate your rates bill and, if you think you might be entitled to a reduction, to seek professional advice.

CVS typically saves clients about 9% on their rates bills on successful cases. We are currently seeing some impressive reductions in the hotel sector, especially among independent operators, where the recessionary climate and a local oversupply of rooms makes a strong case for securing smaller bills.

CVS recently achieved a reduction in business rates charges of £92,000 at an independent hotel in Huddersfield and £70,000 for a hotel in Cleckheaton near Barnsley.

A word of warning, though. You need to substantiate any appeal for a reduced business rate charge and collecting comparable relevant evidence is therefore essential. To maximise your chances of securing a reduction it is recommended that you seek professional guidance.

Don Baker is national head of rating at CVS

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