Rates remains a cloudy subject

As new bills begin to arrive the much-lauded cap is not the reprieve it seemed to be, writes rates specialist Martin Clarkson

Many licensees are awaiting the outcome of rates revaluation appeals

OVER the course of April and May the 2019/20 rates bills begin to land on ratepayers’ doormats.

For those who appealed their reassessed 2017 rateable values and were lucky enough to have had them reduced on appeal, they have the certainty of part of the bill calculation.

However, the amount actually paid is based on a number of other variables, all of which are on the increase.

Firstly, the basic Uniform Business Rate (UBR) increased on April 1 to £0.490 for commercial properties with RVs below £51,000; and £0.516 for properties with RV £51,000 and above.

The UBR is increased each financial year in line with CPI. So, for a property with RV £100,000 and no other considerations, the 2019/20 rates will be £51,600. Water and other costs are likely to be in addition.

Secondly, the transitional relief (or cap) – 12.5% before inflation, or 14.75% in net terms – introduced in 2017/18 has been extended and is now intended to be in place for the entire duration of the 2017 revaluation, until March 31, 2022.

On the face of it that’s good.

But there are some misconceptions around the operation of the cap.

Misunderstood by many, including some experienced financial controllers, was that the cap would operate on an annual compound basis, and not simply freeze rates bills for five years at 14.75% above the 2016/17 levels.

The cap actually operates on the basis of limiting the increase each and every year to 12.5% (plus inflation) of the previous year’s rates bill until the 2021/22 rates year.

So in 2018/19 the cap effectively reset and was calculated at approximately 15.88% applied to the 2017/18 bill.

For 2019/20 the cap has been recalculated again, with the overall effect being that pubs, hotels, etc. will pay no more than 1.527 times their 2016/17 rates bill.

This  was not widely appreciated by many in the sector, who wrongly assumed the increases in RV had been rendered largely irrelevant.

The cap in 2019/20 effectively only comes into play if a property’s RV increased by more than 50% and whilst some have, the number of premises benefitting from the cap will continue to diminish significantly over the next three years.

Allowing for limitations on the amount of total relief available (ironically in the current Brexit landscape due to EU State Aid limits) the value of the cap is eroded further.

Indeed for many larger value properties, or owners/occupiers of a small number of properties with modest RVs, the total entitlement under the cap was breached in just the first year of the revaluation 2017/18. This was more common than initially forecast.

Appeals for many licensed properties are still to be resolved, albeit only a small number of local authorities (notably Lanarkshire and Ayrshire) have yet to turn their attention to pub and restaurant appeals.

Hotels will have further clarity soon, with Edinburgh deciding on some material points by the end of May.

And there is no let up as we head towards the next revaluation in 2022.

There are proposals to reform the revaluation process, principally that they will take place every three years.

Many groups continue to voice concern over the business rates process and are calling for an overhaul or abandonment of the current system. However the fundamental attractions of levying local taxes based on properties makes rates too much of a sure thing for government.

The danger is that by constantly turning cap in hand to the hospitality sector, the golden eggs may dry up as the goose has flown the nest.

• Martin Clarkson is a partner at Gerald Eve.