BUSINESS RATES SHOCKER

Property consultant Paul Giness urges companies to act quickly

The majority of companies across the UK, already battling against the economic downturn, have received another setback with business rates due to rise significantly as from next year.

All businesses in England and Wales will have received a letter during October highlighting a new rating valuation of their properties, which will take effect from April 2010. The rating revaluation is carried out every five years by the Valuation Office Agency (VOA) and rateable values on properties are used to determine annual business rates. They are calculated using a hypothetical rental value, taking into account property type and location amongst other things.

It has been predicted that substantial increases in rateable values are likely in certain markets including offices in the city and the West End of London, retail outlets in Reading and Bristol and industrial premises in Bristol and Manchester Schools and Universities will also be seeing increases.

Paul Giness, a Property Consultant with Expense Reduction Analysts says “The new rateable values have been calculated on the rental values of properties as they stood at April 2008, when they were near their peak just before the economic downturn. The issue is that the rental values of two years ago do not reflect the current market. Experts predict that rateable values in England will increase by around 19% compared with the last revaluation in 2005 and by 15 – 20% in Wales and approximately 10% in Scotland.”

Paul offers the following tips to businesses looking to minimise the impact of the new rateable values on the bottom line:

• Thoroughly review the letter and ensure there are not any obvious errors. For example, a warehouse on part of the site on which you are located may have been demolished or you may not occupy the whole space as stated in the letter. You will have an opportunity to put things right if you act fast – the date by which you must alert the VOA to any errors is 30th November 2009 so they can reassess the rateable value. If you do not respond by this date you will end up going through an appeal process which can be more time consuming.

• If you are unsure whether the new rateable value is correct, look at getting a review by an expert who will analyse your rent, the prevailing market conditions during 2008 and advise if the hypothetical rental value attached to the property more than a year ago was accurate. The appeal window opens on 1st April for proposals. In Scotland appeals will have to be lodged by the end of September 2010.

• If you have not yet appealed your 2005 assessment or there has been some physical change to your site since you last appealed, it could be worth trying to get a backdated saving. However an Appeal must be lodged before the current List window closes on 31st March 2010.

• If the rateable value appears correct, then there are a number of ways to offset the costs of a subsequent rise in business rates from 2010: look at increasing space utilisation, subletting any space saved or claiming empty rates relief on the space not used.

However businesses need to be aware that empty rates relief changed in 2008. Effectively there is now less relief available than before as the Government wants to encourage landlords and occupiers to bring empty property back into use. This means that most property that has been empty for more than three months – or, in the case of industrial property, more than six months – will no longer receive relief from rates. In the majority of cases empty property beyond these relief periods will be responsible for 100% of the basic occupied business rate, although there can still be opportunities that could be worth discussing with an expert.

• Renegotiate the lease by exchanging something that is of benefit to the landlord, such as dropping a break clause to get out of the lease early, in return for a lower rent or a rent-free period.

• If your lease is coming up for renewal, consider moving to offices of comparable size within an area of lower rent and rates. You can compare your rating valuation to that of other properties in your area or to properties of a similar type at www.voa.gov.uk Alternatively, simply reduce the space you occupy if this is feasible and the landlord is agreeable – remember it’s a buyers’ market in commercial property at the moment.

• Finally, if you are a small company and do not currently benefit from small business rate relief when one extra benefit of moving to smaller premises, is you may gain from extra rate relief.

From April 2010, when the new rating revaluation comes into force, you can claim a sliding scale of small business rate relief below the rateable value threshold of £18,000 (£25,500 in London). Small business occupiers should also be aware that this threshold

has just risen by £3,000 so if your new rateable value from April 2010 takes you beyond the previous threshold of £15,000 you will still be able to claim relief, assuming that it is no more than £18,000. You can check the Business Link website for full eligibility details.