Business Rates: Change is coming

Colette Henshaw, Partner, Evelyn Partners, 15 August 2022

Against a backdrop of a volatile economic environment, upcoming changes to business rates in England and Wales will bring them firmly into line with other businesses taxes. Colette Henshaw, Partner, Evelyn Partners explains what the changes mean for businesses.

Business rates are one of the largest occupational property costs after rent. In the past few years, it has become a point of real contention as businesses struggle against the backdrop of a volatile economic environment with an unforeseen global pandemic now coupled with cost-of-living crisis.

Never has it been more pertinent for businesses to evaluate their outgoings and costs as it remains a squeeze. Despite calls to overhaul the business rates system, the Business Rates Final Review in the Autumn 2021 concluded that business rates are a solid pillar of the revenue landscape and are still ‘fit for purpose’ given the c.£30 billion of known revenue it roughly generates per annum.

A shorter revaluation cycle

However, the same review set out a commitment to reform the current business rates system. A reduction to a much shorter revaluation cycle of three years alongside the introduction of the Provision of Information are the two leading changes.

A shorter revaluation cycle is intended to soften the impact of the change to legislation which precludes a market change presenting as a Material Change in Circumstance (MCC). The shorter revaluation is intended to closely mirror property rental markets and eliminate discrepancy between assessments and the rental markets they reflect.

Obligation to transparently declare

The second biggest change is the introduction of a new obligation on ratepayers to transparently declare both in real time and as an annual certification any ‘event changes’ that will happen at the commercial properties they are liable for. This will effectively assist the Valuation Office Agency (VOA) with the identification and introduction of liability from the first opportunity into the List.

A new database platform will house the data and ratepayers are obliged to comply. Correct compliance in terms of data contact and transfer will enable ratepayers to access further detail and evidence used to compile assessments by the 2026 revaluation. Therefore compliance is key to future ability to challenge business rates tax assessments. With the exact date of the introduction of the Provision of Information remaining unclear with only the three-year window of the 2023 revaluation quoted in the February 2022 consultation on the implementation of reform, it is key for ratepayers to begin planning for the change and ensuring they know what will be required of them.

A flurry of consultations

The changing landscape of business rates from the 2023 revaluation onwards will be more evident on the release of the draft revaluation figures intended for 31 December 2022. The national logistics market is set to see significant value increases with this sector seeing great demand during the past few years as consumers switch to online and the requirement for housing and distributing stock has soared.

A flurry of business rates consultations is currently being explored, including an online sales tax consultation seeking to levy tax on online retail sales which would potentially look at raising 1% on online revenue. The intention of the online sales tax would be to support the continuation of business rates retail discount reliefs. However, the infancy of the discussions highlights the weak framework to police and deliver the tax against revenue raised online. For example, does click and collect, mail order and telephone orders fall into the taxable bracket?

At present, discussion remains around the review of transitional relief as we move towards a shorter revaluation period that seems at odds with the current upwards and downwards phasing that usually takes at least three years before most ratepayers come out of phasing. Hope remains for the abolition of transitional relief and ratepayers will be waiting with bated breath to establish if in fact they will benefit from reductions at the 2023 revaluation and those who fear significant increases will likewise remain nervous as to whether the bite of the increase will be felt from day one of the new revaluation. With recession looming and the prospect of the energy crisis worsening, the change to business rates and the impact of the reforms remains largely unknown. However, what is clear is the need to be aware of the impacts of the change and to ensure as a business you can plan and budget in advance of change with a clear strategy employed ahead of time of the best way to protect your position.

Ensuring positions are protected

With the close of the 2017 revaluation fast approaching, ratepayers race to ensure positions are protected and savings recouped to 1 April 2017.

With future intentions to introduce a challenge window of three months from the start of the revaluation from 1 April 2026, the 2023 revaluation will be the last ever rating list to allow ratepayers to challenge assessments throughout the whole revaluation window whilst they get to grips with the new obligation placed on them to transparently declare all changes to the property they occupy. The changes will bring business rates tax firmly into line with other businesses taxes and the compliance that is already required of UK businesses in these areas.