Trade braced for business rates hit

Many operators set for a sting when new values go live on April 1

• Commercial property specialists have predicted that a hike in rates could lead to pub closures.

FROM this April, Scottish businesses will see changes to their non-domestic rates bill for the first time since 2010 – and many operators look set to be paying a lot more, with the draft rateable values released late last year showing hefty increases for many licensed premises.
New rateable values take effect on April 1, marking the start of a six-month window in which licensees can appeal – although they will have to pay the new rates in the meantime.
As reported in the last few issues of SLTN, operators and trade groups have slammed the increases, some of which amount to more than 200%.
And commercial property specialists say a major hike in rates could have a serious impact on the Scottish trade.
Peter Darroch, director at commercial property firm CDLH, said the profitability of licensed businesses “has been impacted upon significantly over the last few years” through a combination of factors including an increase in cost of goods, “substantial increases in the minimum wage, owner’s requirement to contribute to staff pensions” and rising utility bills.

I suspect it will push some operators over the edge.

“The rating revaluation will add further costs to business operations and reduce net profit further,” he said.
Mary McGoldrick of Christie & Co agreed, saying that, combined with rising wage costs, “additional business rates outgoings may create further financial pressures on pubs and we anticipate continued closure rates in the next few years”.
Gary Louttit, head of hospitality and leisure at Shepherd Chartered Surveyors, said he believes the revaluation will have a “significant impact” on the licensed trade in Scotland, adding “more pressure on a sector already hit hard by Scottish Government legislation and increasing barriers to successful trading”.

“I suspect it will push some operators over the edge and indeed I have already spoken to some who believe this will put them out of business,” said Louttit.
“Unjustified” was the word used to describe the rates revaluation by Sarah Fitzpatrick of Graham and Sibbald, who reckons increases will “put extra pressure on the trade in an already difficult market which could lead to more businesses failing”.
Tony McRitchie of Montagu Evans agreed, and suggested that the effect of the revaluation will be off-kilter with real trading conditions.

“I would think that the effect is going to be very uneven when you consider that the valuation date for the current 2010 revaluation was April 1, 2008, nearly nine years ago, and the forthcoming 2017 revaluation date has a valuation date of April 1, 2015, some seven years after that date,” said McRitchie.
“In any business there are going to be winners and losers over that period but consequently the winners are going to show increases in value and rates liabilities and of course vice versa.”
Louise Daily, senior rating surveyor at Colliers International Scotland, said she fears that the “disproportionate way in which changes are being imposed may drive some pubs and restaurants out of business”.
“Turnover in many locations has not risen proportionately between 2008 and 2015,” she said.

“The level of rates set on these properties by the assessors and, in certain instances, the rise in rateable value, has not been applied consistently across all establishments, showing disproportionate increases on specific properties.”
Billy McKaig, director at WYM Rating, also reckons the changes will be “mixed in impact”, but “overall will challenge business to absorb or cope with substantial cost increases”.
“There may be operators of smaller pubs that will benefit from the higher threshold for 100% small business relief (increased from £10,000 to £15,000) but many other operators are facing steep increases that will challenge profitability and can only put pressure on the ability to cover the increased business rates costs,” he said.
Douglas Lambie, licensed and leisure associate at Ryden, highlighted how some businesses will be hit particularly hard due to their revised rateable value.

“It is clear from initial analysis that many rate payers within the hospitality sector will be in for a very unwelcome shock,” he said.
Lambie added that he believes the increase in business rates “will push some licensed premises out of business”.
“There is too long a gap between the revaluation date and settlement of appeal and as a result some businesses will fail in the intervening period,” said Lambie.
“It can be up to three years before appeals are heard and there is no transitional relief to help licensed premises pay their business rates in the meantime.”

Gary Walton of, a subsidiary of Walton HPC, agreed that the impending rates hike could spell disaster for many operators.
“The answer is ‘yes’ many will go out of business, unless they can pass on the increase to customers, and furthermore it reduces profit and the value of their business, and ultimately the marketability should they ever decide to sell,” said Walton.