Business rates are a much-hated tax considered by some as unfair.

But they can be appealed, and it’s something every contractor – especially those with premises on the high street – should consider. Adam Bernstein explores.

BUSINESS rates as a method of paying for local services on non-domestic property have a surprisingly long and storied history that harks back to the Vagabonds Act 1572. But history aside, the fact remains that business rates are as unpopular as they are expensive, and rate payers naturally want to seek to find ways of reducing them.

A great dislike
As for why they are so disliked, Alex Izett, a partner at Daniel Watney, says that not only are they a tax on occupation, they’re ‘often the third highest outgoing for most businesses after salaries and rent’.

Worse, as he explains, ‘business rates are calculated based on the hypothetical rental value of the property at a specific date in time, also known as the property’s rateable value’.

Alan Morrish, a chartered surveyor at Ameliorate Consultancy, isn’t that enamoured with business rates either.

He comments that ‘the rate used to calculate rate bills is far too high at circa 55p in the pound. In 1990 the rate in the pound was circa 30p. Property values have increased substantially since 1990 – meaning rates have turned into another stealth tax’.

The attraction for government, as Morrish sees it, is that rates are easy to collect and hard to avoid: ‘Politicians frequently pledge to scrap or change the rating system but then realise that £30 plus billion of rates income has to be replaced by some other tax.’

It’s worth pointing out the last rating revaluation in England & Wales came into effect from 1 April 2023 and should reflect a property’s rental value as of 1 April 2021 – the valuation date. These values will be in effect until the next revaluation which is due to take place with effect from 1 April 2026.

Dealing with high rates
Now while properties are assessed by the Valuation Office Agency (VOA), part of HMRC, Izett says that ratepayers can challenge the accuracy and fairness of their assessment by registering themselves on the ‘Check Challenge Appeal’ government gateway.

As he tells, there can be several reasons for bills that are higher than they should be, and they all revolve around incorrect data held by the VOA.

This is why he says to use the Check Challenge Appeal process to examine, at the check stage – and if necessary, dispute – factual matters such as floor area, specification, age etc. – ‘all of which may have an impact on the value of the assessment.’

Morrish details the process further. He explains ‘the first stage is about factual matters such as HMRC thinking that premises measure 1,000sq m but actually is 100sq m’.

‘The next stage is about matters of opinion.’ By this he means, premises are assessed at £100 per sq m but should really be £50 per sq m. In this instance, he says the onus is on the ratepayer to prove their case with evidence and detailed reasoning.

At the Challenge stage ratepayers will need to disclose the passing rent and other comparable rental evidence to support a requested reduction to the value of an assessment.

If the parties cannot agree the ratepayer can appeal to an independent tribunal of laypeople.

Morrish emphasises that it’s important to be mindful that ‘properties are assessed from the desk by the VOA so there are [likely to be] errors given the bulk valuation exercise.’ He adds that the rateable value is the estimated rental value of a property based on values as of 1 April 2021; if physical changes are made to a property then these will be reflected in its assessment – but only if the VOA becomes aware of them.

But if the VOA refuses to grant a reduction at the Challenge stage, a ratepayer may proceed to the Appeal stage, whereby, as Izett outlines, ‘both ratepayer and Valuation Officer present their respective cases to a panel of lay members to decide the correct value of the assessment.’

Another route is to see if there are any reliefs and exemptions that can be applied for – under the retail, leisure and hospitality relief scheme for example where qualifying businesses can apply for a 75% relief up to a cash cap limit of £110,000 per business.

Beyond that Morrish advises looking at small business relief which can zero a bill, but ‘only if the rateable value is below £12,000 and the business occupies a single property.’ Izett develops the point, noting that the relief is then tapered between £12,000 and £15,000. Regardless, by definition, this won’t be of use to anything other than a very small firm.

One final option is that if a property is empty or being redeveloped there are exemptions, but these have to be applied for.

Overall though, Morrish comments that ‘local authorities offer very little in the way of discretionary relief these days’.

Be careful
As might be expected with anything procedural there are catches, chief of which is that the process could lead to a rate rise – something referenced by Morrish who says to ‘never put your head above unless you are sure.’

Further, there’s always the risk of fraud where money is involved.

Consequently, Izett says he’d ‘advise seeking advice from a rating practitioner who’s a member of one of the professional bodies – IRRV, RICS and RSA – before challenging an assessment or contacting the local authority for relief.’

Further, he highly recommends ‘doing your homework before agreeing instructions as unfortunately there are a number of rogue agents out there’.

Of course, using a third party carries cost; a rating agency will usually charge a percentage of any actual saving achieved over the period of liability or rating list period – whichever is shorter.

Looking ahead
As for the future, there’s a change coming that ratepayers need to be aware of – a ‘Duty to Notify’ which Izett says has already been legislated for.

The duty, according to Izett, will ‘effectively require ratepayers to provide the VOA with detailed property information via an annual return and to notify them of any property changes made within 60 days of the change’. This new duty, backed by fines and criminal sanction, is expected to be implemented in 2026.

The good news, if any’s to be had, is that Labour in its manifesto pledged to scrap business rates. But as for the reality and timing, Morrish simply says, ‘who knows?’

Wrap up
Business rates, for the moment at least, aren’t going anywhere. Firms should therefore take time to examine their position, compare data with like premises and consider an appeal. But they should only do so on the basis of good advice.
Adam Bernstein is an independent columnist