COMMENT: Everyone knows that the high street is on its knees due to the economic climate and the rise of internet shopping. But the current business rates system also had a role to play.
Rates equating to almost 50p in every pound of rateable value per annum, combined with upward-only rent reviews, are having a devastating effect on businesses. Only adding insult to injury, the inefficient appeals process underpinning the system is causing real problems for the evolving high street.
Currently, there are just a few rates “checks” and even fewer “challenges” (appeals) being made by businesses, which the government may see as a sign that the system is working and that rates are correct. However, this is far from the truth. It is, in fact, an indication that the new rates appeal system of check, challenge and appeal (CCA) is, at best, cumbersome and at worst impossible to navigate. At a time when our high streets desperately need to reinvent themselves – think pop-ups, multi-use sites and changes of use – we need a business rates system that encourages innovation, rather than restricting it.
Problems
Issues with the system are well documented but, when it comes to the new high street model, the main point is pace.
The inefficient CCA system operates incredibly slowly, which is creating uncertainty for new businesses setting up on the high street. The process of submitting checks is not straightforward and is unpredictable. The evidence requirements for challenges are hefty, often causing a headache for small businesses that may be short on time.
For example, it is particularly unfair that all evidence needs to be submitted “up front”, and any evidence that comes to light after the case has been submitted is not permissible. This seems very unreasonable – why should we not be able to submit evidence, born out of rent reviews/lettings evidence, at a later stage if it is relevant?
Reinvention with leisure
In pursuit of a new-style high street, a number of occupiers and owners are looking for different ways to utilise space – reinvention in a bid for survival.
As such, there has been a notable rise in the number of offices and retail units being converted into yoga studios, gyms and leisure clubs. To begin with, rateable values on these types of properties can be very inconsistent, as they are still being valued on the basis of their former use. For example, if a yoga studio takes on a former office, the rates appear to reflect office use rather than leisure use, which would normally be much lower.
To create a fairer system, the mode and category of use when valuing property for rating purposes should be taken into account. This method should lead to a much more reasonable value on former retail properties and, in time, encourage reinvention in retail and office properties. In short, if we want to see a new-style high street, we need a new-style rates system.
It’s not all bad!
Despite its unpopularity, the new system does give opportunities for rates reductions when they are merited. Like it or not, we are stuck with this process for the time being and must try to work with it, rather than fight it. To allow the high street any chance of navigating the system, all parties must be educated and know how it works. But the appeal process does seem to be working.
Should a business think its rates are too high, there are avenues that it can explore in order to help reduce rates liability. For example, if a business has one property with a rateable value of less than £12,000, it can apply for small business rate relief, which is a 100% relief, and it is fairly simple to submit the application. In addition, the government has introduced retail relief for this current rate year, which gives retail properties 33% off their rate bill if the rateable value is less than £50,000. This is a very positive move and should be applauded. It’s a shame, though, that many multiple retailers won’t benefit from this due to the limit on EU state aid and the low threshold that applies.
Also, unknown to some, there is a lot of work going on behind the scenes to check whether the level of rateable value in a number of UK towns and cities is correct. These central discussions have only just started working in practice, and the results should be available to those who participated within the next few months. Some businesses may be unaware that any changes in value due to these discussions could mean rate reductions being backdated to April 2017.
Further incentives?
In order to encourage fewer empty properties on the high street and support existing businesses, the government needs to bring the system up to speed. I suggest that it increases small business rate relief to £30,000 rateable value (currently £12,000); doubles retail relief to 66%; and increases the rateable value threshold to £100,000, but not linked to EU state aid limits, which would help ease the strain on struggling businesses. Perhaps the retail relief should be extended to other uses?
Also, a review of all D2 (assembly and leisure) properties to make sure they are valued in line with the market would be wise. And finally, better communication with the Valuation Office Agency is a must-have; going back to the days where one could phone up and speak to a valuation officer regarding an appeal would be helpful. As a result of tighter resourcing at the VOA, this simply does not happen these days.
Looking forward
At present, there doesn’t appear to be any appetite to change the current system, apart from to implement more frequent revaluations. The government is working on the 2021 revaluation, with the valuation date being 1 April 2019. Perhaps it is time to change the system completely, and to look into self assessment for business rates? Food for thought, anyway.
Martin Davenport is partner and head of business rates at Hartnell Taylor Cook
