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Published on November 23rd, 2016 | by The GC Team

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Treasury’s business rates appeal block could cost SMEs £700m

Business leaders from eight trade bodies have condemned Government plans to stop businesses appealing incorrect business rates calculations, which research shows could hit small firms with more than £700m in “unfair” taxes over the next five-year rating period.

According to property consultancy Daniel Watney LLP and Blackstock Consulting, under the ‘reasonable professional judgement’ provision, ratepayers won’t be able to argue against a rates bill if its margin of error was inside 15%. The two firms used official Valuation Office Agency (VOA) data to arrive at the £700m figure.

The proposal is included within draft regulations for the new business rates appeal regime known as ‘Check, Challenge, Appeal’, which has been widely condemned by major business lobby groups representing thousands of small firms.

The reason for the outcry is that even a small percentage difference in a rates bill can make the difference between firms paying something and nothing at all. Small companies enjoy relief for low value properties. This means that if the VOA overvalued them, they could extract more money from SMEs without them having any recourse.

Debbie Warwick, head of rating at Daniel Watney LLP, said: “For most businesses, rates are the third largest expenditure and for any ratepayer an overpayment of 15% will impact profitability.

“Rating professionals fully understand the need to reduce the number of spurious appeals, especially at a time when the Valuation Office Agency is dealing with year after year budget cuts. This can be remedied by helping ratepayers better understand the basis of their assessment from the outset and demonstrating that their assessment is fair in relation to others.”

Using official Valuation Office Agency data, the research found that qualifying small businesses whose properties had a rateable value (RV) between £12,000 and £15,000 could overpay by up to £137m a year if this new rule is applied. Over the full five-year ratings cycle, this would work out at more than £689m. The full figure would also include businesses above the £15,000 threshold, increasing the potential cost significantly.

Of those overpaying £689m, there are many whose assessments would fall below £12,000 RV and be totally exempt from rates if their assessment was reduced by up to 15%, but under the proposed ‘reasonable professional judgement’ clause could be denied these reductions. Those that could qualify for total relief will instead pay out £431m of the £689m total over five years.

The consortium of business leaders has warned that the new changes could allow the VOA to overvalue properties with impunity, since companies would have no recourse whatsoever.

Martin McTague, Policy Director at the Federation of Small Businesses, said: “We welcomed the Government’s ambition to make the business rates appeals system fairer and easier to navigate. However, it is hard to see how this proposal helps to achieve that aim.

“We believe this clause simply fails the fairness test and could result in the door being shut on small businesses who want to correct inaccuracies in valuations and reduce their rates bills. This research shows that businesses that are already struggling could be pushed into insolvency, with smaller firms particularly at risk.”

Jerry Schurder, head of business rates at property consultancy Gerald Eve, said: These wildly unfair proposals represent the Government’s intention to grant itself the equivalent of papal infallibility and legislate away its errors, making hard-pressed businesses pay for the VOA’s mistakes. The Government seemingly has no confidence in the VOA’s assessments, in which case it needs to reform the VOA or the system, not penalise businesses by outlawing appeals.”

“It is hard to see how these proposals improve our broken business rates appeals system,” commented Melanie Leech, chief executive of the British Property Federation. “They will undermine ratepayer confidence and compound the already high burden of business rates. Not only do businesses and jobs suffer as a result, but the more money that is spent on business rates, the less that is available for property owners to invest in improving our towns and cities.”

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