The Department for Levelling Up Housing and Communities and HM Treasury have issued a joint consultation paper entitled “Business Rates Review – Technical Consultation”, which will run until 22 February 2022. The consultation sets out the government’s proposals following the conclusion of its “Fundamental Review of Business Rates”, which turned out to be rather less fundamental in its outcomes than its title suggested.
We have reported on the fundamental review a number of times in these news pages. It was launched with a call for evidence in the early part of 2020, prior to the COVID pandemic, and was intended to consider, amongst other things, means of reducing the burden of business rates on business, and possible alternatives to the business rates system. In the event, the outcome of this review was delayed from Autumn 2020 to Spring 2021, and then delayed again until Autumn 2021. In terms of fundamental change, the outcomes of the review, which were finally announced in the Autumn 2021 budget, will be very disappointing to ratepayers. The main change proposed is to move from five-yearly revaluations to three-yearly revaluations, hardly a “fundamental change”.
The consultation now published sets out detailed proposals for the implementation of this and other changes, and seeks views on those proposals. The first part of the consultation focuses on the move to three-yearly revaluations, and the changes that are said to be necessary to enable this. These changes are divided into three parts, the first relating to new requirements for information provision by ratepayers and property owners, the second relating to compliance provisions in respect of these information requirements, and the third relating to changes to the business rates appeal regime.
The requirements for provision of information will be worrying ones for ratepayers. They involve a new legal duty being created for people using any rateable property to update the Valuation Office Agency (VOA) each time circumstances change (such as when their rent changes, they start or stop occupying a property, or they alter a property) in respect of any properties they occupy; and to confirm with VOA each April that they have made any relevant notifications in respect of all properties and their information remains up to date. Ratepayers will be required to provide:
- information about the property
- information about the tenancy of the property
- trade and accounts information (where relevant to the valuation)
- costs information (where relevant to the valuation)
This duty will apply to the occupier, where the property is occupied, and to the owner if the property is unoccupied. In addition, an annual confirmation stage will require ratepayers to access the online service annually to confirm that they have provided the information which is required of them and in the course of doing so will be asked to confirm that the data held for their property remains correct.
The next section of the consultation about the move to 3 yearly revaluations details the compliance regime that will be introduced to ensure that ratepayers comply with these new requirements. It proposes that where an obligation has been triggered (for example where there has been a change to the property) then ratepayers will be required to log in to the online service to provide their information in a 30-day window. It is proposed that this change will be introduced during the life of the 2023 rating lists, that is to say between 2023 and 2026.
The consultation also proposes that, from 2026, a sanctions regime will be introduced to ensure compliance with these new duties. Ratepayers may be liable for a penalty for each instance where they fail to notify the VOA of relevant information. The penalty level, and the number of penalties, will be dependent on the type of information that is not provided, such as valuation information or property information. The penalty tariffs proposed range between £300 and £900 (depending upon the size of the property concerned) for a first offence of failing to supply rental receipts or cost information, with daily penalties for continuing non-compliance, and a penalty of 2% of the rateable value change (subject to a minimum of £300) failing to supply property or occupier information. Different penalties are proposed for provision of false information. In addition to these penalties, ratepayers will not be able to challenge the assessment of their property, or have access to information regarding that assessment, if they have failed to comply with the requirements for provision of information.
The final section of the consultation as it relates to the move to three-yearly revaluations concerns changes to appeal rights and, in particular, restrictions on material change of circumstance (MCC) appeals, and the removal of the current “check” stage from the check challenge appeal process. Two principal changes are proposed here. The first will be legislation aimed at establishing that factors arising from legislation, licencing changes or guidance are not in scope for material change of circumstances (MCC) claims. This change is expected to take effect for the start of the 2023 rating lists. The second proposed change is the removal of the Check stage from the Check, Challenge, Appeal (CCA) process from the 2026 rating lists, and the introduction of a three-month window for Challenges on the 2026 rating lists.
There are three further sections of the consultation, which can be covered rather more simply, because what they say will be less alarming for ratepayers. These three sections cover: the proposed new “Improvement Relief”; support for investment in green plant and machinery; and other administrative changes.
The improvement relief, to be introduced in 2023, is a one-year moratorium on any increase in business rates liability resulting from improvements to existing properties. The consultation proposes that, to receive the improvement relief, ratepayers will need to demonstrate that their property meets two conditions. Firstly, the VOA must be satisfied that the improvements meet the definition of qualifying works, and secondly, the relevant local billing authority must be satisfied that in the period since the qualifying works commenced the property has remained occupied and that the ratepayer has not changed. To qualify, works will need to produce: an increase to the size of a building or the internal useable space within it; other improvements or upgrades to the property’s physical state (such as the addition of air conditioning); or addition of other rateable plant and machinery. Works that will not qualify may include: construction of a new building; redevelopment works which take a property out of the rating list, and where after substantial redevelopment the property is brought back into rating; and replacement of an old technology with a more modern one, with no resulting change in rateable value.
The support for green investment takes the form of two new rates exemptions, one for some plant and machinery associated with renewable energy, and the other for heat networks. The consultation proposes that eligible plant and machinery used in onsite renewable energy generation and electricity storage, such as rooftop solar panels, wind turbines, and battery storage, plus electricity storage from any source where it is being used for electric vehicle charging points (EVCPs) will be exempt from business rates from April 2023 until 2035. Heat networks which supply thermal energy from a central source to consumers, via a network of pipes, will also be made exempt from business rates from April 2023 until 2035. These changes will be given effect by amendments to class 1 of the Valuation for Rating (Plant and Machinery) Regulations.
The final section of the consultation details proposed changes to the administration of the central rating list, to discretionary rates relief, and to the calculation of the uniform business rate (UBR) multiplier. The changes proposed for the central rating list are those which were set out in legislation introduced in 2017, but which was lost because that bill never received royal assent, because of the general election. The changes will make it simpler to move properties into, or out of, the central rating list. In respect of discretionary relief, the consultation proposes to remove the constraint on local authorities’ ability to retrospectively award relief and to revoke the regulations controlling variation of determinations and issuing of notices. In respect of the calculation of the UBR multiplier, the consultation proposes: that the small business multiplier should increase by CPI rather than RPI; that charities and unoccupied properties may be eligible for the small business multiplier where appropriate; and that the government may, in any year and by order subject to the negative resolution procedure under index the small business multiplier.
Looked at from the ratepayers’ viewpoint, these changes proposed in the consultation represent a very disappointing outcome from the Fundamental Review of Business rates. One of the stated aims of that review was to look at means of reducing “the burden of business rates on business”. That burden takes two forms, the first being financial (the amount of the tax), and the second being administrative (the work involved with dealing with it). The proposed changes will not reduce the financial burden in any meaningful way, and will significantly increase the administrative burden.
The requirements for provision of information will be very burdensome for ratepayers, and the compliance provisions are Draconian ones, including the removal of appeal rights. There must also be concerns as to the workability of some of the proposed changes. There are approximately two million hereditaments in local rating lists. How will ratepayers cope with making annual returns in respect of every one of these hereditaments, and how will the VOA cope with receiving and processing those returns? Those few elements of the consultation that will be welcome ones are lost under a tidal wave of new burdens for long-suffering ratepayers.