What do you understand to be the meaning of the word “Fundamental”?

According to the Oxford English Dictionary (other dictionaries are available), it means “Of basic importance” or “A basic rule or principle”.

Strange then, that the Government seem to adopt their own interpretation of the meaning of that simple word, at least when it comes to their recently published (27 October 2021) “Business Rates Review – Final Report”. (https://www.gov.uk/government/consultations/hm-treasury-fundamental-review-of-business-rates-call-for-evidence)

But they’ve been very crafty in omitting the word “Fundamental” from the title of this report in order to avoid having to do anything “fundamental”…..subtle, eh?

We have read this report (published to coincide with the Autumn 2021 Budget) and can conclude that (guess what?) further reviews and consultations have been recommended; in fact, another seven in total over the next two years!

The key items, in no specific order, extracted from the Review are as follows; please note that these only apply to England:

1).  A new, temporary, relief for eligible Retail, Hospitality and Leisure businesses of 50% discount on rates bills for one rate year, 2022/23 but with a maximum cap of £110,000 in cash relief per business.

2). No increase in the multipliers for 2022/2believe that 3 so the current year multipliers will apply for 2022/23 as follows:

Large – 51.2p per £ of Rateable Value

Small – 49.9p per £ of Rateable Value

3). Confirmation that, with effect from 2023, Revaluations will take place every three years so the pattern will be 2026, 2029, 2032 and so-on. They have also confirmed that there are no plans to move to annual revaluations nor to change the current two-year Antecedent Valuation Date. So for the next Revaluation in 2023, an AVD of 2021 will apply….and that is likely to be a problem itself in terms of the dearth of rental evidence within some sectors such as High Street retail.

4). The Government “will continue to explore the arguments for and against the introduction of an Online Sales Tax (OST) and will consult further”. An OST has been promoted as a possible answer to the thorny problem facing our High Streets insofar as its introduction may “balance” the tax burden between traditional bricks and mortar retailers and those operating exclusively on-line. We believe that the introduction of such a tax is a necessary step that may enable reduction in the far too high burden of business rates especially as part of the Governments intended “levelling-up” plan to revitalise our High Streets. Time to move into the 21^st century?

5). In order to help ratepayers invest in their property and business, the Government   are to introduce a 100% “Improvement Relief” which will provide 12 months relief from increases in their liability where eligible improvements are made to an existing property which would, ordinarily, lead to an increase in RV and, hence, liability.

6). In addition, and as part of their “green” agenda, they will introduce an exemption for eligible plant and machinery used in onsite renewable energy generation and storage between 2023 and 2035. Such items as solar panels, battery storage and EV charging points will qualify for such exemption. Further, a 100% relief will be provided for eligible low-carbon heat networks that have their own rating assessment. Further technical consultation will be undertaken on this proposal “later this year” but with any changes taking effect in 2023.

7). The Government do not intend to remove any of the existing reliefs. Instead they are looking to digitise the system which should enable automatic application of relief where feasible. As part of their March 2021 budget announcement, funding will be provided to “digitalise business rates” (DBR). Coupled with the Valuation Office Agency Business Systems Transformation program, they consider that the development of a versatile database which will match business rates with central HMRC tax data should provide an integrated “Single Customer Account”. It would seem that this is seen as the panacea that will “allow businesses to more easily understand and monitor their tax liability”. To that end they are to pump a further £31 million into the development of DBR in the Spending Review. We shall see, no doubt but don’t hold your breath!

8). Unsurprisingly, perhaps, but there will be a focus on what they consider to be “misuse” of the reliefs with particular concern around misuse of Empty Property Relief  (EPR). They are to consult on such measures in 2022. We are of the opinion that were the system simplified, then there would be no need for any evasion or avoidance tactics to be employed. EPR is a nonsense. No Landlord wishes to deliberately keep premises empty (for obvious reasons) but the Government seem to think that they do! Evasion, of course, is not only illegal but morally and ethically wrong; avoidance is another matter entirely and is a tactic that needs to be employed in order to mitigate rates costs associated with empty property. Should your business have the burden of paying empty property rates, please contact us for advice on how they can be mitigated.

9). On a more positive note, the government are to increase the frequency of Revaluations which they (and we) consider would represent a fundamental meaningful improvement and help to ensure greater distributional fairness. Instead of the current 5-yearly cycle (which has been extended more than once since 2000!) they are to adopt a 3-yearly pattern of Revaluation commencing from the next Revaluation in 2023. Hence future Revaluations will be 2026, 2029, 2032 and so-on, every 3 years. We believe that this is, indeed, a significant step forward and should provide for more accurate valuations that more readily (and more speedily) reflect changes in the market……..but

10). They are not going to pursue changes to the Antecedent Valuation Date (AVD) in the short-term. There will remain a two-year gap between AVD and the Revaluation effective date. We consider that this AVD to Revaluation gap needs to move to one-year in order to more accurately reflect a true market position. This does, however, remain an “aspiration” for the Government. We can but hope!

11). They are to “carefully consider the case for annual revaluations” in the longer term. However, we feel that the system will have to improve markedly in order to realise that aspiration. Our view is that such a move would be a step too far because it may lead to abolition of individual valuations and be substituted by banding or indexation of valuations from year to year which would not be in business’ best interests.

12). In order to achieve more frequent revaluations, a further investment of £0.5 billion additional resource will be given to the VOA as part of the Spending Review which will include funding for necessary upgrade of IT and digital capabilities. This is good news which we hope will lead to better and more transparent engagement with the VOA going forward.

13). However, unfortunately the burden upon the humble ratepayer is set to get heavier. In order to “help improve list accuracy, ratepayers will be required to notify the VOA of changes to the occupier or physical property characteristics, and to provide rent and lease information to the VOA as well as trading information” for use in compiling their valuations. Yet another technical consultation will take place “later this year” (time is running out though!) which will look to ensure that ratepayers can engage with these duties in a “light touch” and minimally burdensome way (whatever that means!). Such duties will be phased in during the course of the 2023 Rating List(s). Naturally there will be penalties for non-compliance or provision of false information (well, what a surprise?).

14). Consequently, changes will be made to the Check, Challenge, Appeal (CCA) system which will encompass removal of the Check stage from the process. This change will become effective from the 2026 Rating List. We think that this assumes that the VOA’s records will be in such an advanced state that they will be 100% accurate (is that a pig I just saw flying through the air?)…..hmm? But, and there always is a “but”, they plan to introduce a 3-month window for submission of Challenges and (from 2026) the end of each List will be set as the statutory deadline for the VOA to resolve Challenges. This seems, on the face of it, an impossible ask of ratepayers and their agents and will only lead to a flood of Challenges all at the same time or missing the opportunity entirely? How can that be seen to be fair and reasonable?

15). Another obstacle is also going to be introduced in the form of specific restrictions to Material Changes of Circumstances (MCC) (which often affect a ratepayers property in unforeseen ways). The government are to “legislate to clarify that factors arising from legislation, regulations, licensing changes, or guidance are NOT in scope for MCC claims”. We are not quite sure what this will mean but it will avoid MCC challenges for the fiscal consequences of any future health pandemics! This should be of concern to all ratepayers and their agents.

16). As a means of providing greater transparency on valuations the government are to introduce increased transparency in two phases. Briefly, Phase 1 (to be implemented before 2023) will comprise improved guidance on the principles of rating and valuation and Phase 2 (to be implemented for the 2026 List) will make available fuller analysis of rental evidence used to set RV’s. We await further information on what this will look like.

17). Transitional Relief (TR) will remain in place….both upwards and downwards. There will also be an extension of the current TR scheme for small and medium size businesses for one year (2022/23) which will restrict bill increases to 15% for Small and 25% for Medium businesses subject to subsidy control limits (the EU State Aid limits which still apply). We doubt whether there will be more than a small proportion of businesses affected though. To inform the design of the next TR scheme which will apply at the 2023 Revaluation, consultation on TR will take place in 2022 with a view to confirming the scheme by the autumn.

Of course, the elephant that remains firmly in the room is that all of the above measures only applies to England. If you are a national or international operator then you will have to tolerate different Business Rates systems within each national jurisdiction in the UK; England, Wales, Scotland and Northern Ireland. We are, sadly, becoming a more dis-United Kingdom as time progresses which does not help transparency, simplicity or, indeed, fairness of this tax in our opinion.

Notwithstanding the last paragraph, will the proposed measures reduce the burden of this ancient (400+ years old, give or take a few tweaks along the way) tax? Of course not. But, perhaps, better the devil you know rather than the one you don’t? Many of the correspondents to this last consultation (ourselves included) have been here before…many times…over the last 30 years or so and nothing by way of real positive reform has taken place. The Government have simply added a few more tweaks preceded by wondrous headlines of the promised land…but lacking what businesses really want. We will keep lobbying and responding and, perhaps, someday, a Government will listen and act rather than simply hear our pleas.

Above all else the tax rate needs to be drastically reduced to a more sustainable figure. A 50% tax rate is a business killer and we can’t see this being reduced anytime soon unless the resultant reduction in the annual rates revenue (approx. £27 billion) can be offset by some other form of revenue hitherto not discovered or applied. Will an OST be the answer? Perhaps, but international politics are the likely barrier to its introduction. Yet local services rely heavily upon revenue generated by BR and Council Tax (why not a CT Revaluation – long overdue?) and many businesses readily accept their role in helping to fund those services which they and their customers rely upon each day. But we have reached the point where tolerance of a flawed system has expired. It only needs meaningful and fair reform (as proposed by those who operate within it) and not replacement.

If you wish to discuss any matters arising from this review or require advice on any aspect, please get in touch with us at any time; we are here to help YOUR business.