Business Rates Revaluation will hike bills for one in four

3rd October 2016

The next revaluation of all properties for business rates will take effect from 1 April 2017. Some ratepayers in sectors and locations where rateable values have increased more than the average will see significant hikes, particularly in London.

The highest rises are in London where retail rents are due to go up by 14% while office rates will rise by 10%. The average increase for Greater London will be 11%. By contract retail in the southwest will see rates drop by 14% and 10% for offices. The Northeast will see rates cut by 16% for retail and 21% for offices, reflecting a market with substantial over-valuation which has not been addressed since the 2008 crash.  Their bill will be capped each year at a set percentage increase due to the revaluation in order to help them plan for their future rates bills.

Under both proposals for transitional arrangements, the government will offer a cap on increases in the first two years for small properties at 5% and then 7.5%. This is a cumulative increase which by the end of year two would be 12.9% before inflation. Ratepayers leave the transitional relief scheme once they reach their full bill. So a small property facing an increase of 10% would reach their full bill in year two.

The Department for Communities and Local Government (DCLG) says the government did consider whether the cost of the scheme should be spread evenly over all other ratepayers using a supplement on the multiplier.However, this method of funding the transitional arrangements would mean all other ratepayers would make the same percentage contribution to the cost of the transitional arrangements (based on their rateable value) irrespective of the degree to which they have benefitted from the revaluation, which was felt to be unfair.

2017 business rate revaluation: estimated percentage change in bills at 2017 revaluation

Area Central Retail  Offices Industry  Other  Total
London  --- 14% 10% 4% 14% 11%
North East --- -16% -21% -9% -1% -11%
Yorks & Humber  --- -11% -21% -9% -4% -10%
North West  --- -15% -14% -12% 0% -10%
West Midlands  --- -11% -16% -7% 1% -7%
East Midlands  --- -5% -2% -7% 3% -3%
East  --- -13% -7% -7% 2% -6%
South West  --- -14% -10% -5% 1% -6%
South East  --- -8% -3% -4% 6% -2%
Central list  28% --- --- --- --- 28%

Note: before inflation and the adjustment to the multiplier for future appeal outcomes.  All bills before transitional relief and small business rate relief.
Source: Department for Communities and Local Government

The threshold for small properties will be those of less than or equal to £28,000 in Greater London and £20,000 elsewhere. The consultation also looks at introducing a new threshold for large properties with a rateable value above £100,000.

The consultation lays out two options. The first would offer the same level of support, in percentage terms, to small and medium properties facing increases as has been provided at the last two revaluations in 2005 and 2010. A third band provides a different level of support to the largest ratepayers who, DCLG says, are better placed to anticipate and manage the impacts of the revaluation. The relief is funded by two sets of caps on reductions, ie both upwards and downwards.

Under this scheme, over 600,000 properties will receive protection from increases in bills in year one and over 77,000 will continue to receive help over the full five years. Some 13,000 large properties (with a rateable value above £100,000) see increases capped at 33% of which almost a third are in London.

However, in order to fund the transitional arrangements, both medium and large properties will see their benefits from the revaluation limited. In year one, 219,000 medium and large properties will see their reductions capped and 46,000 of those will remain in transition (held above their lower bill) for the full five years.

The second option allows medium properties that stand to gain from the revaluation to see their reductions come through quicker than under option one. To pay for this less relief is provided to large properties.

Under this option, medium properties benefitting from the revaluation would see the reduction in their bill capped at 10% rather than the 4.1% proposed in option one. This ensures that, in 2017/18, less than 94,000 medium properties are held above their lower bill. By year five all but 200 medium properties will have reached their full lower bill. This also means that only 10,000 are expected to remain in transition to a lower bill over the whole of the period of the relief scheme compared to 46,100 properties in the other option.

This means an additional 36,100 properties would reach their lower bill in option two compared to option one. However, to offset the cost of this change, option two provides less protection for large ratepayers (with a rateable value of more than £100,000), and as a result, the maximum increase for large properties in year one would be 45%.

The government’s preferred option for transitional relief will be worth £3.4bn, with properties in London in total benefiting it from transitional relief worth almost £1bn over the life of the scheme. Over 140,000 properties in London will be able to claim transitional relief of which over 100,000 are small properties.

DCLG says option two enables a large number of medium properties which have gained from the revaluation to move to their lower bill faster than option one. It estimates that only 10,000 properties are likely to use the transition to a lower bill over the full period of the scheme.

The revaluation is cost neutral and does not raise extra revenue for the Exchequer. This is because the government will reduce the tax rate – known as the multiplier – to offset the overall change in rateable value.

DCLG says that as a result of cuts to business rates announced at Budget 2016, 600,000 businesses will pay no business rates at all and its analysis shows the revaluation will mean nearly three out of every four businesses will see their bills fall or stay the same.

Following the revaluation, the small business multiplier is estimated to fall, from April 2017, by 1.7p to 46.7p; and the standard multiplier is also estimated to fall by 1.7p to 48p to ensure business rate receipts remain constant in real terms. The consultation ends on 26 October.

(CCH Daily)

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