Government turns to business rates reform to improve building quality, but will it work?

The UK Government claims that a new bill will support businesses by modernising the business rates system to incentivise property improvementsThe UK Government claims that a new bill will support businesses by modernising the business rates system to incentivise property improvements and support more frequent revaluations. The measures being put forward review and reform business rates in England, making them fairer and more responsive to changes in the market. The Non-Domestic Rating Bill will introduce more frequent valuations, to take place every three years instead of the current five, meaning those with falling values will see their bills drop sooner, accorrding to the Treasury.

It will also provide new business rates improvement relief, so businesses making qualifying building improvements will not face higher business rates bills for 12 months. This will make it easier for businesses to invest with new reliefs for property improvements, providing tax breaks for businesses who are extending or upgrading their property.

Key aims:

  • More frequent revaluations.
  • Administrative reforms to deliver a sustainable shorter revaluation cycle, which will hopefully enable more accurate rating lists and enable the disclosure of more information to ratepayers about their business rates valuations.
  • Measures to support decarbonisation and investment, including a relief for low carbon heat networks and a new Improvement Relief so that, from April 2024, ratepayers will not see an increase in their rates bill from qualifying improvements made to their property for 12 months.
  • Support announced by the Government at Autumn Statement 2022. This includes a three-year Transitional Relief scheme. The Bill removes the statutory requirement for revenue neutrality within transitional relief, with the removal of downwards transition.
  • The Digitalising Business Rates project, which, we are told, will modernise the business rates system, improve the targeting of rates relief, generate better data for central and local government and help to improve business rates compliance.
  • Improvements to the administration of business rates, including replacing RPI with CPI as the measure of inflation used in the annual indexation of the multiplier.

However according to Colliers, the reforms won’t deliver on their promised ambitions. John Webber, Head of Business Rates said: “On the surface these changes look positive. We have long been fans of more frequent revaluations and the removal of downwards transition; although ideally, we would prefer annual revaluations if rates bills are to be a more accurate reflection of rental levels. The relief for low carbon heat networks and the new Improvement Relief scheme are also in the right direction- although we would argue limiting the relief for only 12 months is unlikely to encourage long term investment.”

Colliers say they have large concerns about the administrative burden put on the rate payer with the new requirements for the annual provision of information and the duty to notify whereby businesses will not only need to confirm the physical details of the property on an annual basis but also provide updates on rents and lease information as well as trading information, even where there have been no changes notifications. Failure to do so could result in some serious fines or even imprisonment for false statements. Now an additional 700,000 businesses, who currently pay no business rates due to reliefs, will have to send information to the VOA in a bureaucratic exercise, which “won’t result in any increase in the business rates tax take- just cause an administrative headache.” says Webber.

“Overall this bill represents a complete change around in terms of the obligations on the VOA – obligations which are now being put on the ratepayer,” he says. “The new regime requiring annual notifications and duty to notify is backed up with penalties and onerous fines, which could run into tens of thousands of pounds with the ultimate sanction of imprisonment.

“Yet no similar obligations have been placed on the VOA to produce its assessments quickly and any timetable associated with transparency is silent. The government has also said nothing about speeding up the appeals system or any timetable to achieve this.”

Webber is concerned this increasing burden will put businesses even more into the hands of rogue rating advisers who will claim to advise them through the paperwork: “Unless the government does something about the issue of rogue surveyors, these new demands will give a green light to cowboy rating advisers taking advantage of businesses now even more unsure of how to negotiate the complex business rates system.

“Meanwhile nothing has been said about tackling the real issue with business rates- that it is overburdensome and just too high a tax to be sustainable for businesses – it’s a plus 50p in the £ tax. Unless the Government reduces the Multiplier to levels businesses can afford- say 34p in the £ -none of the above changes will make a significant improvement for businesses. We will be continuing our lobbying campaign among MPS as this Bill makes its way through Parliament.”