A recent announcement by the Valuation Office Agency (VOA) and draft regulations released by the Department for Communities and Local Government (DCLG) are set to introduce changes that are likely to increase business rates while reducing the opportunities for ratepayers to appeal.

Announcement by the VOA

The VOA has announced that, following last year's Supreme Court decision in Woolway (VO) v. Mazars LLP [2015] UKSC 53, it will be changing the way in which it values non-domestic properties with more than one occupier for the purposes of business rates. Those affected are likely to see an increase in their business rates bill.

In summary, where an occupier uses two or more distinct spaces within a building which are not contiguous or interconnected and can only be accessed via the common parts (for example, floors 2 and 4 of a multi-let office block), the VOA will treat those areas as separate premises for the purposes of calculating business rates. Previously such areas would have been treated as one set of premises and assessed for rates accordingly.

The changes:

  • will be backdated to the more recent of i) 1 April 2015 in England or 1 April 2010 in Wales and ii) the date the ratepayer became an occupier;
  • may result in an increase in business rates even though there has been no change to the underlying floor areas or nature of the occupation;
  • apply equally to unconnected adjacent units – for example, two adjacent industrial units on an estate where there is no access from one to the other except via a communal yard;
  • will likely result in adjoining floors in an office being separately assessed for ratings purposes; and
  • may affect how business space is let and structured in the future. For example, an owner-occupier of a multistorey building may be reluctant to let any unused floor space due to the additional ratings liability this will attract.

The VOA's guidance, including other examples as to how the changes will work, can be found here. For detailed commentary on the decision in Woolway (VO) v. Mazars LLP, please refer to our previous alert, "Geography, function and objective necessity: a new approach to non-domestic rates in the office".

DCLG consultation

Further changes are on the horizon for ratepayers in England as the Government is seeking consultation on the proposed regulations that will implement Check, Challenge, Appeal ahead of the 2017 revaluation. The Government is proposing that the Valuation Tribunal for England (VTE) should only change the rateable value where it is found to be "outside the bounds of reasonable professional judgment". This is a considerably higher threshold than the current approach where the VTE determines what the valuation should be.

If the proposals are implemented it is likely that:

  • appeals will be significantly less successful overall and those which do proceed are likely to take longer, particularly if the new approach is challenged in the courts;
  • a valuation that falls within a broad valuation range will not be altered;
  • the margin of error protection afforded to the VOA will result in increased business rates liability for occupiers; and
  • the onus will be on the ratepayer to demonstrate why a valuation is outside the bounds of reasonable professional judgment with limited visibility in respect of the data on which the VOA has based its valuation.

The DCLG proposals can be found here and the consultation closes on 11 October 2016.