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In 2014 the coalition government announced a review of the administration of the business rates system. The interim findings of this review were published in December 2014 and one of the key findings was that the business rates system needed to be more responsive to economic change. There is no great surprise in this finding – the Rateable Values currently in force are based on a valuation date of 1 April 2008 and are therefore eight years out of date and largely pre-date the financial crisis of 2007/8 and its effect on the property market.
In response to this finding from its review, the government has now published a consultation paper “Business rates: delivering more frequent revaluations”. The consultation paper is published jointly by HM Treasury and Department of Communities and Local Government. It seeks views on a number of specific questions and also looks for comments on alternatives approaches that could deliver more frequent revaluations whilst still providing a stable tax base, being affordable to administer, and fair between ratepayers. All options have to be fiscally neutral – that is to say to deliver the same amount of business rates as the current system.
The specific options considered in the consultation paper and on which the government seeks views are a “self-assessment alternative” and a “formula alternative”. It seems from the consultation paper that the government does not believe the present method of revaluation, where properties are individually assessed by the Valuation Office Agency, is capable of delivering more frequent revaluations without a significant increase in costs.
The self-assessment option proposes that ratepayers should assess the value of their property or properties within parameters published by the Valuation Office Agency. The questions in the consultation focus on how a compliance regime might work and on the publication of self-assessed values, as well as the difficulties that such a system might create for smaller businesses.
The formula option considers an approach whereby the assessment for business rates would move away from a direct link to market values and towards an assessment based on a formula involving size, use, and location of the property concerned. The questions look at how such a formula might be constructed and how to deal with properties that would, on the face of it, defy a formula basis of assessment – utilities for example.
The overall tone of the consultation is a negative one with a whole series of consultation questions focussed on “the challenges of delivering more frequent revaluations under the current system”. The option of self-assessment is certainly worth exploring and the questions posed here are valid ones. The formula alternative seems to resurrect an approach that was considered in the original 2014 consultations and rejected in the interim findings published at the end of that year. It is very hard to see ratepayers accepting the “tough luck” outcomes inherent in a formula approach when the tax rate is very close to 50% for most larger properties – as it is this year.
What the consultation seems to suggest is that, even with technological advances, the present system of individual assessments is unable to deliver revaluations on, say, a three-yearly basis. This seem surprising because, although individual property revaluations are expensive to carry out, the real expense of a revaluation is in the appeals it provokes. If revaluations were more frequent values would be likely to be seen as more relevant and realistic and therefore less likely to generate appeals. The economics of appealing are also more questionable for an assessment that will last for only three years as opposed to five years, or even seven as at present.
The consultation runs until Friday 8 July 2016 and we hope that ratepayers and others will come forward with a view of more frequent revaluations, perhaps under the present approach, or perhaps under some other system such as self-assessment, that is rather more positive than the one set out in the consultation.
