Rating Update - Business rates changes on the horizon

In this update:

• Progress on the new Non-Domestic Rating Bill
• Latest on ongoing consultations for England and Wales
• Details of the new consultation on business rates avoidance and evasion
• Impact of the changes to the appeal process in Scotland
• Changes and consultations in Wales

New Non-Domestic Rating Bill

In our April update, we summarised the then newly published Non-Domestic Rating Bill intended to make the legislative changes required to enable the Government to deliver the reforms proposed in the Spring Budget. While several sensible amendments have been tabled in both the Houses, the Bill has passed through the various stages unaltered. There remains an opportunity for amendments to be put to the vote. However, time is now short, with the current Parliamentary session ending ahead of the King’s Speech on 7 November 2023.

We consider many of the proposed changes to be a step in the right direction towards more significant reform, but central to the Bill is the change in how information will need to be provided to the Valuation Office Agency (VOA) and HM Revenue & Customs (HMRC). Substantial new obligations will be placed on ratepayers under a duty to notify and a requirement to provide an annual confirmation. The Bill also introduces strict compliance regimes with significant potential penalties and fines for non-compliance. We have argued that there should only be a single requirement, either by event or annually, and that there should be consequences for the VOA if they do not act on notified changes in a timely manner. The proposed amendments to the rules governing MCCs are an unfair, knee-jerk reaction to the specific circumstances of COVID-19, and the proposed reforms go too far.

As a reminder, The Department for Levelling Up, Housing and Communities (DLUHC) has summarised what the Government believes the Bill will deliver:

More frequent revaluations – Shortening the business rates revaluation cycle in England from five to three years.

Administrative reforms – In support of a more frequent revaluation cycle, underpinned by a new compliance regime, there will be new duties that require ratepayers to provide the Valuation Office Agency (VOA) with information about themselves, their hereditament (the property or part of the property which is liable for business rates), and their business.

Improvement and Heat Network relief – New reliefs for improvements to hereditaments and for heat networks with their own business rates bill.

New data gateways – Enable the VOA to share certain valuation information with (i) rating officials in Northern Ireland and (ii) ratepayers in England.

MCCs – Tightening the scope of Material Change of Circumstances (MCC) provisions in England such that legislation, licensing regimes and guidance from public bodies should not be grounds for a change in rateable value between revaluations.

Digitalising business rates – A new duty on ratepayers to provide a taxpayer reference number (such as a self-assessment or corporation tax unique taxpayer reference) to HMRC, underpinned by a new compliance regime.

Administrative improvements – Changes encompassing multipliers, the central rating list, completion notices in England, the accounting of business rates retention in England, and the removal of restrictions on local authorities making retrospective awards of discretionary relief in England.

Ongoing consultations

Disclosure and Sharing Information on Business Rates Valuations

Over the summer, there was a consultation in England on Disclosure and Sharing Information on Business Rates Valuations. The Government was keen to engage with ratepayers and representative bodies as part of this process. Several constructive meetings were held, hopefully resulting in a process that will be of genuine benefit to ratepayers. There are enabling measures within the Rating Bill that would allow the VOA to share more information with ratepayers earlier in the process. It is clear that this reform is needed to avoid an appeal backlog as we move to more regular three-yearly revaluation cycles.

This consultation closed on 7 June 2023. The government is currently analysing feedback before issuing a formal response.

Improvement Relief Scheme

There has been a consultation on the proposed regulations for the improvement relief scheme to be introduced in England, which will provide building occupiers with a 12-month relief regarding the addition to their assessments resulting from qualifying improvements from 1 April 2024.

Have Your Say: Empty Rate Avoidance and Evasion

There is currently a live consultation in England covering empty rate avoidance and evasion.

Read the full paper: Business Rates Avoidance and Evasion Consultation

Most of the document covers various forms of empty rate mitigation, which central and local government seek to remove or limit, and seeks views on how reforms should be implemented. Measures under consideration include:

• Extending the period during which properties need to be reoccupied before a period of empty rate relief can be claimed from the current six weeks to three or six months.
• Limiting the number of times that an individual ratepayer might be able to apply for empty rate relief on the same property.
• Requiring more than 50% of a property’s floorspace to be occupied to qualify for a fresh rates-free

The consultation also considers the position concerning empty rates where the ratepayer is a charity or Community Amateur Sports Club (CASC). There is no suggestion that the current 80% mandatory relief for occupied charitable use might be altered but that the 100% relief for vacant space of charities or CASCs could be changed.

We are disappointed that this consultation mainly considers ways to reduce lawful mitigation rather than focusing on the fundamental issues surrounding empty rate charges. The current position whereby ratepayers can benefit from an initial 3-month period of 100% relief (or six months for qualifying industrial properties), after which empty rates become payable at 100% of the occupied charge, was introduced in 2008 following the Lyons Inquiry Report which recommended reducing empty rate relief after three or six months rather than abolishing it as the Government did. At the time, the justification was that the Government wished to encourage landlords not to hold properties vacant unnecessarily.

Clearly, in the current market conditions, where for many property sectors there is an oversupply, landlords have no incentive to keep properties vacant. In our response to the consultation, we will make it clear that the most appropriate way to minimise mitigation schemes, which central and local governments are critical of, is to reduce the financial need of using these schemes by allowing a longer than three or six months initial rate free period, followed by a reduction in, rather than complete removal of, the subsequent empty rates relief.

The consultation also addresses the ‘Rogue’ agents’ issue and asks for suggestions on discouraging these operators. RICS, IRRV and RSA members are already required to follow the relevant rules of conduct, as summarised in this joint statement. The VOA has recently also issued a press release referencing this issue.

The consultation requires responses by 28 September 2023. This is a real opportunity to give feedback on important rating issues. We will be submitting a response and would be pleased to represent your views – send us an email.

Scotland – New Appeal Process

The new appeal process took effect in Scotland on 1 April 2023 with a deadline of 31 July 2023 for all revaluation appeals against the new rateable values. The Scottish Government subsequently acknowledged some teething issues with the system and extended the deadline in mid-July after pressure from lobbying groups to 31 August 2023.

The process has been onerous and cumbersome, and some may consider that it was designed by the Government to restrict the number of proposals submitted. We predict that the number of proposals submitted by ratepayers will be significantly less than the number of appeals submitted during the 2010 and 2017 revaluation periods and fear that some, particularly smaller businesses, may have considered the process too difficult.

We will monitor how this process evolves with the Scottish Assessors, the Scottish Tribunal Service and the Scottish Government over the coming months. We hope that lessons will have been learnt from this process and suspect that there will be significant movement from both ratepayers and Assessors towards pre-agreements for the 2026 Revaluation.

While this initial deadline has passed, there are still some circumstances where an appeal may be made

Wales

From 1 April 2023, a new appeal regime was introduced in Wales, which broadly mirrors the Check Challenge Appeal process in England. The Welsh Government has also committed to publishing a Local Government Finance Bill at the end of 2023, outlining details for Wales moving to a 3-yearly revaluation cycle, Duty to Notify and powers to alter the multiplier.

Along with consultations on Improvement Relief and Renewable Energy Rates Support, a live consultation that seeks views on the Welsh Government’s proposals to reform devolved tribunals in Wales is closing on 2 October 2023.