A change is coming but how much change will business rate payers be left with?

In February this year, the Government completed their consultation on business rates following the effects of the decision in Woolway v Mazars.

In February this year, the Government completed their consultation on business rates following the effects of the Supreme Court decision in Woolway v Mazars (2015). The outcome of this case caused a change in a well established approach used by the Valuation Office Agency in assessing rateable values for businesses. Previously, where two or more units in a multi-occupied building were touching they were treated as one property and received one rates bill. Following the decision in Mazars such units have been treated as individual properties and for some business ratepayers, this has had the following negative effects:

  1. multiple rates bills for each property rather than the one they were used to receiving;
  2. an increase in the overall rateable value; and
  3. a loss in small business rate relief and other quantum allowances.

In short, businesses have been subject to several, higher rate bills simply because their units in multi-occupied buildings have been 'split' and no longer classed as one property. This has resulted in numerous grumbles amongst the business world and has since become known as the "staircase tax". Comments such as "burdensome" and "unfair" have also been used to describe the revised approach. In light of all this, the Government will be introducing legislation reinstating the Valuation Office Agency's practice prior to the Supreme Court's decision in the Mazars case. So what are the possible practical applications for retailers?

Do you occupy more than one unit in a building shared with other businesses?

If your units are touching (and the legislation will refer to this as 'contiguous') then this will be treated as a single property and you will no longer receive multiple rates bills; instead you will receive just the one bill. The proposed legislation introduces a 'contiguity condition' and two or more units will satisfy this condition if:

  • some or all of a wall of one unit forms all or part of a wall of the other unit; or
  • some or all of the floor of one unit forms all or part of the ceiling of the other unit.

There is an exception where two or more non-touching units are separated by a public highway or common area with a strong functional connection i.e. used for similar purposes; if this can be evidenced then this will be classed as a single property.

What about units used for wholly different purposes?

This is not included in the provisions of the draft legislation. It will remain the case that two or more units used for wholly different purposes will be classed as separate properties. So, to qualify as one property, not only must your units be touching but they must also be used for similar purposes.

What if your units are separated by another business or an area in shared use?

They will be classed as separate properties so you will continue to receive a rates bill for each unit.

How about unoccupied units?

Originally this was to be outside the provision of the draft legislation. However, during the consultation process concerns were raised so the Government have agreed to extend the legislation to cover unoccupied properties. The Government's consultation documents say "The normal approach in the Valuation Office Agency was to not change now a property was assessed when it fell vacant. The new provisions seek to reinstate this previous practice as much as is practicable." They do not elaborate any further than this.

When will the draft legislation become law and how will it be implemented?

The draft legislation will amend section 64 of the Local Government Finance Act 1988.

The Valuation Office Agency would need to amend the relevant rating lists and bills will be automatically recalculated by Local Authorities. If you are a ratepayer who was affected by the Supreme Court's decision in the Mazars case then you will have the opportunity to request a reassessed rateable value. Once the draft legislation has been approved, the Government will provide a right to make a proposal to amend the 2010 rating list. This right will be limited to only those ratepayers who were affected by the Mazars decision and where they think two or more units should be assessed as one property. The Government have also said that they will ensure an appeals process will apply.

Do I need to do anything?

Further to the above, if you are a current ratepayer or a previous ratepayer and you believe that the reinstated practice should apply to you then you will be able to submit "checks" and discuss a backdate to the April 2010 rating list with the Valuation Office Agency. The Government's consultation says that the Valuation Office Agency will prioritise these applications so they are dealt with quickly.

Will reinstating the previous practice provide for a stable and fair approach?

This is the Government's aim. The approach prior to the Supreme Court's decision in Mazars had been in place for over 50 years and considered to be widely accepted and understood and that is what the Government is trusting in. However, this previous approach goes back to a time when bricks-and-mortar retailers were the norm. Times have changed and we are now living in a digital economy so irrespective of one property or multi properties, the more traditional high street retailers will continue to lose out to online retailers who will pay less in business rates. We only have to look at Toys 'R' Us, Maplin and Poundworld. In the past few weeks, the British Retail Consortium has called on the Government to freeze business rates for two years to "ease pressure" on retailers so the above might all be irrelevant! We will have to sit tight and see what the fate of business rates will be in this year's Autumn Budget.

Pam McGuigan is a solicitor in our real estate team.

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