Commercial property tax in the UK: business rates and rating appeals
| DOI | https://doi.org/10.1108/JPIF-03-2016-0014 |
| Date | 05 September 2016 |
| Pages | 602-619 |
| Published date | 05 September 2016 |
| Author | Paul Michael Greenhalgh,Kevin Muldoon-Smith,Sophie Angus |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
Commercial property tax
in the UK: business rates
and rating appeals
Paul Michael Greenhalgh
Department of Architecture and Built Environment,
Northumbria University, Newcastle Upon Tyne, UK
Kevin Muldoon-Smith
Northumbria University, Newcastle Upon Tyne, UK, and
Sophie Angus
CBRE Leeds, Leeds, UK
Abstract
Purpose –The purpose of this paper is to investigate the impact of the introduction of the business
rates retention scheme (BRRS) in England which transferred financial liability for backdated appeals to
LAs. Under the original scheme, business rates revenue, mandatory relief and liability for successful
appeals is spilt 50/50 between central government and local government which both share the rewards
of growth and bear the risk of losses.
Design/methodology/approach –The research adopts a microanalysis approach into researching
local government finance, conducting a case study of Leeds, to investigate the impact of appeals
liability and reveal disparities in impact, through detailed examination of multiple perspectives in one
of the largest cities in the UK.
Findings –The case study reveals that Leeds, despite having a buoyant commercial economy driven
by retail and service sector growth, has been detrimentally impacted by BRRS as backdated appeals
have outweighed uplift in business rates income. Fundamentally BRRS is not a “one size fits all”
model –it results in winners and losers –which will be exacerbated if local authorities get to keep
100 per cent of their business rates from 2020.
Research limitations/implications –LAs’income is more volatile as a consequence of both the
rates retention and appeals liability aspects of BRRS and will become more so with the move to
100 per cent retention and liability.
Practical implications –Such volatility impairs the ability of local authorities to invest in growth at
the same time as providing front line services over the medium term –precisely the opposite of what
BRRS was intended to do. It also incentivises the construction of new floorspace, which generates risks
overbuilding and exacerbating over-supply.
Originality/value –The research reveals the significant impact of appeals liability on LAs’business
rates revenues which will be compounded with the move to a fiscally neutral business rates system and
100 per cent business rates retention by 2020.
Keywords Taxation, Leeds, Local authorities, Business rates, Local government finance, Rat ing appeals
Paper type Research paper
Introduction
The UK has one of the most heavily centralised systems of policy making, political
control and public finance (Martin et al., 2015). In an era of austerity, government is
using fiscal decentralisation/federalism as a mechanis m to increase territorial
autonomy represe nted by growth-ba sed market reforms ( Muldoon-Smith a nd
Greenhalgh, 2015). Despite tax raised from local business rates being significantly
higher than in any other OECD country, there has been little focus on the business rate s
tax since it was reformed in 1990 (Adam and Miller, 2014).
Journal of Property Investment &
Finance
Vol. 34 No. 6, 2016
pp. 602-619
©Emerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-03-2016-0014
Received 3 March 2016
Revised 13 April 2016
Accepted 18 April 2016
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
602
JPIF
34,6
In the Local Growth White Paper: realising every place’s potential (HM Government,
2010), the coalition government announced that they would consider strengthening
incentives to encourage and support local growth via local retention of business rates,
giving greater financial autonomy to local authorities. In the 2014 Autumn Statement
(HM Treasury, 2014), George Osborne committed the government to undertake a
fiscally neutral review of the business rates system (due 2017). A year later, the
Chancellor announced at the Conservative Party Conference that from 2020, local
authorities in England would retain 100 per cent of their business rates as the block
grant is abolished (Osborne, 2015).
The business rate retention scheme (BRRS) was introduced on 1 Apr il 2013,
following an initial government consultation in July 2012 (Department for Communities
and Local Government, 2012c), the intention of the scheme being to provide local
authorities with an incentive to grow their economy; however, at the same time it
transferred financial liability for backdated appeals to LAs which potentially
undermines this. The Local Government Association (LGA) (2015) suggests that
the volume of appeals being submitted against rateable value (RV) is so high that the
Valuation Office Agency (VOA) does not have the resources to deliberate and deal with
them efficiently; local authorities are paying the price of this delay the longer it takes
for appeals to be resolved the more it costs them. A consequence of the scheme, being
relatively new, is that there has been little research into the impact of appeals liability
on local authority business rates revenue under BRRS; a case study of Leeds is used to
investigate the impact of appeals liability on one of the largest cities in the UK.
Background and literature
Business rates or national non-domestic rates (NNDR) is a property tax charged on
non-domestic properties, such as shops, offices and industrial premises; whilst the
principles of NNDR are the same across the UK, regimes vary in their operation:
Scotland and Northern Ireland function under comparable but separate legislation from
England and Wales, which themselves operate slightly different systems. The focus of
this research will be based on the English system only.
Business rates in England raise approximately £24 billion per annum from around
1.8 million non-domestic properties, calculated according to a property’s RV which is set
by the VOA for each non-domestic property (HM Treasury, 2016). The tax is leviedon an
assessment bythe VOA of the annual rental value which a property(hereditament) could
have been let for from year to year (Kolinsky, 2015) at the date of valuation. An
antecedent data ofvaluation (AVD) date is used for revaluation,which is two years prior
to the new rating list coming into effect, in order to allow the VOA time to collect rental
evidence, prepare valuations and consult with ratepayers. Currently in England, the RV
of a property, following the 2010 revaluation, is based on a valuation date of 1 April2008;
the antecedent valuation date for the 2017 revaluation is 1 April 2015.
According to the Valuation Office Agency (VOA) (2016a), RV represents the
hypothetical annual rental value for a property let on the open market at the AVD,
assuming that a tenant is responsible repairing and insuring the property (often
referred to as full repairing and insuring equivalent). RVs are assessed by VOA staff,
based on rental market data collected around the AVD, including survey data collected
using “forms of return”which asks business tenants about their passing rent and the
lease or tenancy agreement. This rental evidence is analysed and adjusted to ensure
that all the evidence is considered on the same basis, from which valuation officers
determine the levels of values for different types of property. Each property is valued
603
Commercial
property tax
in the UK
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