Behind the Budget – Cluttons’ experts provide summary on key points

November 2021 – Behind the Budget’s fanfare and headline grabbing business rate cuts for retailers and hospitality firms, the conclusions from the Government’s fundamental review consultation with the industry were also quietly published.

Cluttons’ experts Michael Hampton-Riddington and Ryan Jones, partners in the business rates team, provide their summary and verdicts on the key points:

A move to three yearly rating revaluations starting from April 2023 but rateable values set two years prior. Cluttons’ verdict: “This move has been campaigned for by many in the business community. It is disappointing though that although this will mean the rateable values will be assessed on a more regular basis, rateable values will still be based upon an antecedent valuation date set two years earlier.  It is our opinion that this lag will not fully capture the changes to the property market and hence rental values from which rateable values are derived.”  (infographic/icon – thumbs up and thumbs down)

Further consultation to follow on a potential Online Sales Tax (OST). Cluttons’ verdict: “There is a large amount of support for this – if the government went ahead then the income raised from this tax would be used to reduce business rates for retail businesses with properties in England helping to rebalance the tax between retailers with properties and on-line retailers. We would welcome any such move.” (infographic/icon – glasses as in ‘watch this space’)

From April 2026 rating list, a restrictive three month window will be put in place for submission of challenges against a ratepayer’s rateable value. Cluttons’ verdict: “This leaves little time for rating professionals or ratepayers to consider their position and gather together relevant evidence to consider whether their value is correct or not within this shortened appeal window. We are extremely disappointed with this decision and consider it a step back to the old days of seeing blanket challenges on properties which will clog up the challenges system causing severe delays in settling challenges and correcting RV’s.” (infographic/icon = big thumbs down)

Enhanced transparency from April 2026 whereby the Government intends to provide full analysis of rental evidence used to set a rateable value. Cluttons’ verdict: “Unfortunately, a request will need to be made to the VOA for this information to be released. It is ludicrous to have to request this when it should be readily available to a ratepayer.  Questions arise as to when such a request can be made and whether this will shorten the gap for challenges further if the information is not provided swiftly? Due to confidentiality issues there has always been a refusal to disclose the trade adopted on the valuations of properties valued with regards to income – this would include public houses, cinemas, bingo halls etc – as the valuation approach for these properties should be based on fair maintainable trade and not purely driven by actual trade.  The inability to discover details of comparable properties trade information may lead to large discrepancies between values for similar properties. Rateable value is meant to be the value for the property “vacant and to let” – the lack of transparency of comparable data means that there is no “stand back and look “ stage to the valuation.  Preparing challenges without comparable information will prejudice the rate payer.”  (infographic/icon = thumbs down)

A new requirement for ratepayers to notify the valuation office of changes to their property and of the occupier. There will also be a requirement upon the ratepayer to give the VOA rent and lease information along with trade information used for valuations. Cluttons’ verdict: “This will replace the “check” stage of the current system but will mean that ratepayers will effectively be doing what the valuation office should already be doing, and we await details of what exactly this will entail. These measures are to be phased-in during the 2023 Rating List.” (infographic/icon = glasses = watch this space and a mini thumbs down)

There will be further restrictions to the eligibility criteria for Material Changes in Circumstances (MCC) claims introduced. Factors relating to legislative and regulatory factors will be removed from eligibility. Cluttons’ verdict: “This appears a further restriction upon the rights of ratepayers to challenge their assessment during the course of a rating list.  This move is of no great surprise following government essentially banning material change appeals against the events of COVID-19 and the lockdown’s that were set down in law but again it does limit the right to appeal.” (infographic/icon = thumbs down)

Retail relief eligible properties will receive 50% relief but only up to a cash cap of £110,000 per business and not per property. Cluttons’ verdict: “For retailers with multiple properties this cash cap will soon be hit, and full rates will then be payable.  It is not fully clear whether this relief is in addition to the current relief, but given no announcement to the extension of the current relief was made – we doubt it! Further guidance is due later this year confirming which businesses are eligible.” (infographic/icon – glasses = watch this space and a mini thumbs down)

The Government will introduce a 100% improvement relief for occupiers undertaking eligible improvements to an existing property that increases the rateable value. This will last for 12 months only and apply only to the increase and not the entire liability starting from 2023. Cluttons’ verdict: “This raises the question of whether an occupier investing in a new property and undertaking improvement works would miss out if they had not already been in occupation of the property previously?  The government is due to consult on how this relief will work in practice.” (infographic/icon – glasses = watch this space)

Net Zero. An exemption is to be introduced against eligible plant and machinery used in onsite renewable energy generation and storage such as solar panels. This will be in force from 2023 to 2035. Cluttons’ verdict: “This relief will apply to the eligible plant and machinery and not to the property as a whole which limits the incentive.” (infographic/icon = mini thumbs up)

Small business rate relief currently provides 100% relief for approximately 700,000 properties and will remain in its current form. Cluttons’ verdict: “Despite the report confirming that there is no intention to remove any existing reliefs currently, there will be further detailed work taken in relation to avoidance and misuse of empty rates relief with a consultation next year – watch this space.” (infographic/icon – mini thumbs up and glasses – watch this space)

Given the reduction in frequency to rating revaluations there is a need for a redesign of the transitional relief scheme to which the government will consult on in 2022 ready for the 2023 revaluation. Details will be confirmed in Autumn Cluttons’ verdict: “Transitional relief is a mechanism that limits the increase or decrease in a ratepayer’s liability between rating revaluations.  Transitional relief can lead to nasty surprises for ratepayers when they expect the liability to fall in line with their rateable value and it does not. Revision of this is required – soon.” (infographic/icon – glasses = watch this space)

The Uniform Business Rate will not be cut, it will be frozen in 2022 and going forward CPI will be the default measure of inflation used for future increases. Further consultation will take place later this year. Cluttons’ verdict: “This decision is extremely disappointing and will keep next year’s rates payments at what most consider to be extremely unacceptable high levels.” (infographic/icon – big thumbs down)Cluttons’ conclusion: “Ultimately it appears that after undertaking the fundamental review government have again realised that the business rates system generates far too much income into the public purse and in a post pandemic world simply cannot afford to significantly change the system which could jeopardise this essential funding stream. There is no alternative to replace business rates due to the scale of income it generates (over £25 billion a year in England) and any shift of the burden to other areas of the tax system could be seen as inequitable. Despite the Government promising a fairer and clearer system, the report does not add weight to this and the reforms are not fundamental nor as equitable as they could be, whether that was the genuine intention or not. The next decade will be telling but that’s a long time for many businesses to wait and see if their situation improves as a result.”