Retailers’ rate bills are expected to rise sharply as a result of the latest property valuation.

Towards the end of last year, the Inland Revenue’s Valuation Office Agency (VOA) sent out notices setting out a new “summary valuation” of property to around 1.75million businesses – shops, offices, factories and warehouses. These notices are part of the process by which the VOA meets its obligation to review the rateable value of all non-domestic property every five years.

The current programme of revaluations is based on the property market values at 1 April 2003, but takes effect as from 1 April 2005. Individual valuations are also available for inspection on the internet.

Calculating the rate

The notices explain how the VOA has calculated the property’s rateable value. Put simply, the VOA works out the property’s annual rental value based on the assumption that it was available to let on the open market at the valuation date.

The property’s rateable value is important since rate bills depend on this value multiplied by the Uniform Business Rate, which is set each year by central government.

The Uniform Business Rate for the tax year 2004 – 2005 was 45.6p for but it will be revised by the Chancellor for the tax year beginning in April 2005.

It is expected that the next round of valuations will see steep increases for the retail sector since, at the time on which revaluations are based, rents in the retail sector were escalating (while those in the office sector were sluggish).

Six per cent rise for bills

The British Retail Consortium estimates that, on average, rateable values in the retail sector will rise by 25%, which will mean a 6% increase in rate bills.

As examples, most of the businesses in the Bluewater retail centre in Kent will see their rateable values go up by 54%, the JJB sports outlet in Gateshead will see its value increase by 76%, and a fashion retailer in St Alban’s will see an increase of over 140%.

Read carefully

It is essential that businesses read the notice they receive from the VOA carefully, since failure to check its contents could have a big effect on costs. If, though, businesses act promptly, they can help ensure that any new rating assessments are corrected before any incorrect rates demands are issued by their local authority.

Disputing the facts

If a business discovers any inaccuracies on the summary valuation notice, it should make the necessary amendments and send it back to the local VOA office as soon as possible. It should hear back from them within 20 days as to what action the VOA intends to take.

If the VOA’s summary valuation is not disputed, the business does not need to take any further action. The summary valuation will be formally adopted and this will be the basis for future rates bills.

If, however, the business disagrees with the valuation, it has the right to make a formal appeal.

Appeals should be sent direct to the VOA, either by correspondence or by making the appeal online at the VOA website.

Such appeals cannot be made until after the scheme has come into effect on 1 April 2005, but businesses can appeal at any time during the five year “life” of the new valuations.

Few challenges

At present, fewer than half of all rating assessments are actually challenged, and only a tiny number of bills are properly queried by businesses. Given that the new assessment will remain in place for five years, it is clearly essential that any mistakes or contested assumptions are brought to the VOA’s attention.

The new rating assessment comes into effect at the same time (1 April 2005) as the introduction of a small business rate relief scheme. The details of the scheme are still being worked out, but it looks likely that rate relief will be available if the ratepayer occupies only one property and the rateable value of that property is less than £15,000.

Properties with a rateable value below £5,000 will receive relief of 50%; this level will reduce on a straight-line basis to 0% when the rateable value reaches £10,000.

This might sound generous at first, but a business operating from one property, which has a rateable value of £9,500, would only receive a saving of £3.82.

Further, a small firm which operates from two premises that have a combined rateable value of £9,500 will not only find itself ineligible for the relief, it will also have to pay a 1.6% surcharge.

The surcharge is a percentage increase in the Uniform Business Rate (UBR) which will apply to all businesses that are not eligible for rate relief.

Surcharge exemption

There is good news, though, for sole property occupiers with assessments between £10,000 and £15,000. Occupiers who fall within this band will be able to apply to their local authority each year for exemption from the surcharge. Successful applicants will not have to pay the surcharge.

Businesses should remember that a range of other reliefs are available.These are often made at the discretion of local authorities.

For example, where a property is used wholly or mainly for charitable purposes, the charity can apply to its local authority for an 80% reduction in its bill. (Any local authority, can, at its discretion, reduce the bill further or even cancel it altogether.)

If a business is situated in a “qualifying rural village” and has a rateable value of less than £12,000, the local authority, again at its discretion, can decide to write off the bill completely if it agrees that the business is of benefit to the local community.

Genuine hardship

If a business is experiencing genuine hardship, and cannot pay its bill, then the local authority may decide to give relief from either part or the whole of its liability.

Authorities are only likely to agree to do this, however, where a business is particularly important to the local community.

Businesses in England may qualify for transitional relief, which will continue to be available here after April 2005, although it has already been abolished in Wales and Scotland.

Transitional relief is available to any business where a new rateable value results in a significant increase on the previous year’s liability.

Any ratepayer who has any query about their new rateable value should discuss the matter with their accountant.