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The rise and rise of your business rates

18 June 2004
The rise and rise of your business rates

Hospitality operators could face a doubling in their business rates when the new values are introduced in April next year, warn industry experts.

There are also fears that some companies will be incorrectly assessed or will miss out on the transitional relief designed to cushion them from any significant increases in rate liability.

The warning follows draft valuations of the 1.7 million commercial properties in England and Wales by the Valuation Office Agency (VOA), handed to the Government last week.

The Valuation Office assesses the "rateable value" of all commercial property in England and Wales, representing the notional annual rental value of the property on a given date, every five years. A company's business rates liability is then calculated by multiplying the rateable value by the uniform business rate (UBR), which is set by central government and is annually adjusted in line with inflation.

Deputy Prime Minister John Prescott is expected to give an early indication of the revised business rate levels next month. However, key issues such as the provision and funding of transitional arrangements, the UBR, and small business relief have yet to be resolved and are unlikely to be so until late summer or early autumn.

Several factors point to sizeable increases in business rates next year. Since the last rating was introduced in 2000, rental values for commercial property have risen significantly. More importantly, the way in which certain businesses are assessed by the Valuation Office has changed this time.

Traditionally, licensed restaurants have been valued according to factors such as size per square foot and location, while pubs and hotels have tended to be valued on what is considered to be a "fair maintainable turnover" for the property.

Mick O'Donoghue, associate director and rating specialist at property consultancy Colliers CRE, explains that pubs have tended to be under-assessed. But this time the Valuation Office issued statutory forms requesting information relating to trade, with a system of fines for those who failed to cooperate. The result is that assessments will be more accurate and many rate payers will see a notable increase.

"There could well be catch-up," says Jerry Schurder, head of rating at property consultancy Gerald Eve. He says valuation officers can increase prior assessments on the spot if they think the business is under-assessed.

O'Donoghue says that some under-assessed businesses could see 50% rises or even a doubling in their rates bills, although increases will not be uniform. While operators at the high end of the market will see increases of 20-25%, those at the bottom will see reductions. "For most businesses the increase in business rates will be sustainable as it will reflect an increase in turnover," he adds.

In general O'Donoghue and Schurder expect total rateable values to be up by 15-20% on 2000.

You can appeal against the assessments if you disagree with them, and with the Valuation Office assessing 1.7 million properties and missing some information, errors are likely.

Ratepayers can also appeal if there has been a "material" change in circumstances post-valuation - a physical alteration or damage to the building affecting trade, or even external factors such as nearby roadworks.

An appeal should be made within six months of the date of the change. New occupiers or owners can make appeals within six months of taking occupation or acquiring ownership.

There are lots of professional firms that can help draft an appeal or you could contact the Valuation Office direct (see www.voa.gov.uk).

But industry fears about rates are not limited to the increasing tax burden. The Confederation of British Industry is growing increasingly concerned by calls from local authorities to return the UBR to local control, remove the cap that ties increases to inflation, and increase business rates to pay for council services.

Lucinda Turner, head of the CBI's Infrastructure Group, says the previous system of localised rates "did immense damage" to the relationship between local government and business and "companies faced large and unpredictable increases in their bills".

All eyes are on the deputy prime minister but in the meantime ratepayers should keep the Valuation Office informed of any changes.

Business rates timelineApril 2000 - Current business rating came in.

September 2003 - Local Government Act passed giving the Valuation Office Agency (VOA) power to fine businesses who fail to provide requested information.

July 2004 - Government scheduled to release regional rateable values statistics, announce a possible UBR from April 2005, and provide information on likely transitional arrangements.

October 2004 - Publication of the draft rating on 1 October. Launch of www.mybusinessrates.gov.uk website containing information about business rates and enabling operators to look up the rateable values, but not the business rates bills, of other businesses.

April 2005 - New rating introduced and the appeals begin.

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