Rating in the new millennium

Catherine Montgomery gives an update on rating values in the new century

Non domestic rates are a tax on the use and occupation of business premises and are calculated by reference to the value of any property as it appears in the current rating list, which value is calculated by reference to the hypothetical rental value of the property at a given moment in time, known as the antecedent valuation date (AVD).

Under the Local Government and Finance Act 1988 ("LGFA 1988") it is the duty of the Valuation Office Agency ("VOA") to compile and maintain local and central non domestic rating lists. An updated list must be compiled every five years, with the most recent list coming into force on 1st April 2000. The AVD for the purposes of the year 2000 revaluation is 1st April 1998.

Businesses may therefore have found that over the last year or so the VOA has submitted to them requests for information regarding the rent or other tenure under which they occupy their premises, which information has been used to build up a database from which the year 2000 rating list has been compiled.

The VOA has now completed and sent to each billing authority a copy of the new rating list which will show in relation to each hereditament certain details including its proposed rateable value for the period 2000-2005. The billing authorities will have issued bills for 2000/01 in March. The year 2000 rating list can be obtained from the relevant authority or by visiting the VOA's website (http://www.voa.gov.uk) where the rating list details have been posted for the first time.

Effects of revaluation

The rateable value shown in any new rating list is important, not only because it quantifies the liability of any business to rates but also as it may crystallise other financial liabilities such as:

Compensation payable upon determination of a business lease under the Landlord and Tenant Act 1954, where the landlord seeks possession of premises for redevelopment (in which case compensation of one or two times the rateable value of the property is payable, depending upon whether the tenant has been in occupation for up to or over 14 years);

Service charge, where apportioned by reference to the rateable value of the premises.

The rateable values shown on the year 2000 list will have escalated considerably in some cases. For example, the total rateable value for all property in the City of London will have more than doubled after 1st April 2000.

This is not surprising, bearing in mind that the 1995 rating list with its relatively modest rateable values was calculated on the basis of a depressed rental market in April 1993 whereas the year 2000 rating list has been drawn up by reference to rental values as at April 1998 as the UK property market was experiencing a strong recovery.

Where a large increase in any rateable value applies, a company needs to plan its budget accordingly. In the past, the Government has made transitional relief available to rate payers whereby, upon an upwards revaluation, a rate payer’s liability to the increased rate demand would rise by just 10% plus inflation every year until the new rates level calculated by reference to the revised rateable value was reached. The bigger the differential between the old and new rateable value, the more short term savings could be made before the rate payer would attract full rates liability.

Transitional relief will likewise be available in respect of the new year 2000 list values. Smaller businesses with a rateable value of less than £12,000 (£18,000 in London) will face increases of only 5% plus inflation for 2000/01 rising to 7.5% plus inflation in each of the following four years, whereas larger businesses will see increases of 12.5% plus inflation in 2000/01, 15% plus inflation in 2001/02 and 17.5% plus inflation in each of the following three years. Any reductions in rates are subject to downwards transitional phasing. The impact of the new rateable values is likely therefore to be tempered, in the short term at least, by transitional relief.

In addition, business rate payers should consider appealing the new rateable value, where appropriate.

Change afoot

The Labour Government, ever keen to challenge and review existing legislation, has carried out a series of consultation exercises concerning the rating system, culminating in the issue of a White Paper in 1998 "Modern Government in touch with the People". The Government intends to reform the existing system by:

• Returning to an element of local fiscal control by introducing a supplementary local business rate. If implemented, local authorities would be able to introduce a discretionary local tax of up to 5% of the national business rate, which they would be able to spend as they pleased. Indeed, those authorities who have performed best in the country ("the Beacon Councils") would be given wider powers. This proposal, whilst welcomed by local authorities, has been greeted nervously by most rating professionals and businesses and it is understood that a further round of consultation on this issue will take place shortly.
• Introducing a concessionary business rate targeted at small businesses whose premises have rateable values under £5,000.

Until the Government promotes any legislation on these issues there is little businesses can do other than monitor and comment on the various consultation rounds.

In the meantime the Government has announced further proposals to streamline the appeal procedure for rating disputes to reduce the uncertainty and delay which can be experienced when a ratepayer attempts to challenge the listed rateable value.