The Queen’s Speech earlier this year confirmed the government’s intention to press ahead with changes to the business rates regime. Key reforms include a move to more frequent revaluations plus new responsibilities for ratepayers around provision of information.
Commentators have expressed concern that the review lacks detail, despite the introduction of a more onerous reporting regime with penalties for non-compliance.
One positive development announced in the Chancellor’s Spring Statement in March 2022 was that the green measures within the reforms – support for investment in sustainable plant and machinery – would be brought forward and made effective from 1 April 2022.
'This is another bit of red tape that business owners may get wrong'
Shorter revaluation periods
Fundamental to the review is a shift from a five-year to a three-year revaluation cycle upon which rateable values will be assessed. The shorter cycles will – the government argues – provide greater transparency on rateable values, with business rates more accurately reflecting market changes.
However, the measures needed to facilitate those shorter cycles will impose greater burdens on businesses, argues Stephen Paul, founder of accountancy practice Valued.
When looked at alongside other initiatives such as the advent of Making Tax Digital plus a volatile trading environment, the measures begin to look like so much red tape. Factor in the low visibility so far of the changes, the concern that ratepayers might miss deadlines and attract fines is a very real one, he says.
‘I think a lot of business owners won’t be aware of these changes,' Paul says, 'so my concern is that this is another bit of red tape that they may get wrong.’
There is a real possibility that ratepayers might resort to over-notifying to avoid fines
Provision of information
The reforms mean ratepayers must notify either their billable authorities or the Valuation Office Agency (VOA) about changes that may impact their business rate valuation.
Broadly, there are two sets of obligations:
- a duty to notify the VOA of changes to the occupier and property aspects that would affect the assessment of the property for business rates
- a mandatory requirement to provide rent and lease information whenever a relevant change occurs.
Any changes of these types should be flagged within 30 days, and also confirmed annually via an online portal. Detail is lacking on the kind of changes that would require reporting, says Jerry Schurder, head of business rates at consultancy Gerald Eve. This means that there is a real possibility that ratepayers might resort to over-notifying to avoid fines.
Improvement relief
The announcement that property improvements would attract a one-year relief was a welcome one. Once again, however, details on what would constitute a qualifying improvement have been lacking.
At the time of writing, responses to a consultation were being analysed by government. Additionally, there are concerns that this beneficial arrangement to ratepayers hasn’t been communicated well.
The relief for green energy sources is a positive and powerful message that simply hasn’t reached many businesses
Green measures
There is a similar message around the green measures. From 1 April 2022, business properties that have renewable energy sources and storage onsite – such as rooftop solar panels, wind turbines or electricity storage (from any source) for the purpose of recharging electric vehicles – will attract 100% relief on the value attributable to those features. The exemption also applies to low-carbon heat networks that are separately assessed and have their own rate bill.
Schurder’s response is that there is a lack of definition around ‘low-carbon source’ for qualifying heat networks. Moreover, the support for environmental, social and governance (ESG) is not consistent, since low-carbon networks that support industrial processes do not attract relief.
It is regrettable, in Paul’s view, that this element of the reforms hasn’t been more widely communicated. The relief for green energy sources is a positive and powerful message that simply hasn’t reached many business owners.
‘Allowances for building improvements and green energy represent a real opportunity for business owners,' he says. 'The fact that green plant and energy sources would bring savings on business rates – that’s a really powerful message.’
Another potential concern is that business owners will fall prey to the kind of pop-up advisory firms that cluster around small businesses in particular, promising great benefits in exchange for large fees, says Paul.
Transitional relief
Draft 2023 rateable values are due to be published by the VOA by the end of this year, based on April 2021 valuations. With today’s business rates based on valuations from nearly seven years ago, however, large changes in liabilities are expected.
The government is conducting a consultation on transitional arrangements. This, says Schurder, is in recognition of the fact that big increases will be hard for ratepayers to manage. ‘The problem with transitional arrangement legislation is that it is required to be fiscally neutral, so any losses need to be made up within the system,’ he says.
This may result in steep increases being capped, but there will also be caps to any immediate falls in business rates. ‘That is seen as massively unfair,’ says Schurder, ‘and some responding to the consultation say it should be abolished.’
‘There is a lot of uncertainty in terms of what this will look like, with ratepayers in a difficult situation in trying to budget for future liabilities,’ Schurder says.
Uniform business rates (UBR) normally go up in line with inflation. The reintroduction of the UBR multiplier – usually based on the inflation figure prevailing in the September prior to the revaluation period – will make the next increase unusually steep, all the more so since the UBRs have been frozen in response to Covid-19. ‘The reintroduction may lead to a 10% increase, unless the Exchequer steps in,’ says Schurder.
Spread the message
The reforms do include opportunities, particularly around green energy installations and improvement relief. Whether the message will get through is a moot point, Paul believes, particularly against a backdrop of Making Tax Digital and great economic uncertainty.
To him, the profession has a responsibility: ‘We have a duty to go out there and make our clients aware of this.'
