Business rates and their impact on further education establishments

Published on: 14th October 2016

In what has been billed as the biggest change in a generation, the process of the 2017 business rates revaluation is well under way. Richard Farr, partner in our rating team, considers what colleges and further education establishments need to know – and how they are likely to be impacted.

What are business rates?

Business rates are a tax payable on non-domestic buildings, including all educational buildings, set by the Government and collected by the relevant local Council. Similar to Council Tax for domestic properties, business rates serve as a contribution towards local services.

In England and Wales, business rates are calculated according to a property’s ‘rateable value’. For colleges that were built for educational purposes, this is usually set in reference to the cost of building a new facility at the time of the last valuation date (currently 1st April 2008). Where a college or FE establishment has been converted from another use, for example an office building as is common in the London boroughs, the rateable value represents the market annual rental value at the time of the last valuation date.

This figure is then multiplied by the annual Business Rates Multiplier, which is set by the Government, to give the total amount payable before any deductions.

All further education buildings have rateable values and must pay business rates as a result, but most are eligible for reliefs through charitable status.

What changes are under way?

On 1st April 2017, new rateable values for properties around the country will be implemented. This has triggered a lengthy process, including a number of key dates throughout 2016 and 2017.

Draft rateable values were published online by the VOA (Valuation Office Agency) on 30th September, which help organisations to understand their new valuation, whilst providing an opportunity for them to tell the VOA about any errors before the new rates are applied from April. For the first time, this information has only been made available online via the VOA website, and they won't be sending out printed valuations.

How will it impact FE establishments?

Most organisations including colleges are likely to experience a change in their business rates as a result of the business rates revaluation. This is because the valuation date is set two years before the last revaluation and since there has not been a revaluation since 1st April 2010, local authorities in England and Wales are still basing their business rates bills on 2008 figures. This will change next year, as all non-domestic properties in England and Wales will be reassessed based on a valuation date of 1st April 2015.

Sanderson Weatherall has a network of offices across the UK and working with educational buildings in different regions has shown us some interesting variations. In the London boroughs, for example, many colleges have seen an increase to their rateable value because the rental value of their property has increased considerably since 2008.

Outside of the M25, where it is usually more common to have purpose-built colleges (rather than converted buildings), many will have noticed a more modest increase in rateable values. Our own research shows building costs rose by around ten per cent between 2008 and 2015, due in part to the cost of materials such as steel and concrete, and this has been reflected.

Any establishment that has extended or refurbished their facilities since that time, or changed the use of a building, is also likely to have found that their rateable value has changed.

What happens next?

Although the draft rateable values have now been published, colleges will not be able to calculate their new business rates until the Government announces the multiplier in January. New rates bills will be issued on 1st March 2017 and the revaluation comes into effect from 1st April.

The important thing is to seek advice from a qualified rating advisor as soon as possible to make sure you are not paying over the odds. They can assess your draft rateable values and analyse whether you are entitled to a reduction in your business rates.

To watch our business rates revaluation video guide, please click here.

Business Rates

Click here to find out how the 2017 revaluation will affect your business. Sanderson Weatherall Rating specialists are RICS and IRRV qualified surveyors that can offer a comprehensive range of Rating services to clients including Rating Appeals, Rating Valuations, Rates Management and Rates Audit, together with cutting edge advice on Empty Rates mitigation. Regarded as experts in the field, all our senior staff are members of the Rating Surveyors' Association and are able to offer the very best Rates advice on the accuracy of Rating assessments and resultant Business Rates liabilities. Through our experts' memberships of the Institute of Revenues, Rating and Valuation we are also happy to assist clients who have international local property tax liabilities. We participate in the activities of both of these professional bodies at the highest level and negotiate with government on the introduction of all new non domestic rating proposals. The current 2010 Rating Revaluation took effect on 1st April 2010 and as s a result new rateable values and summary valuations were released. Sanderson Weatherall is ready and able to advising clients, old and new on the implications. Although these assessments have now been in place for just over five years, Rating appeals can still be submitted against the 2010 Rating List albeit with some new restrictions on backdating.Following the recent postponement of the planned 2015 revaluation, the 2010 list will now apply until March 2017. Please contact us for urgent Rates advice, as a well-considered appeal could make large savings in your annual Business Rates outgoings.   Contact Us

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Business rates are changing

The biggest, but perhaps the least surprising news to come out of the draft rateable values announcement, which was made on Friday 30th September, is that the revaluation will affect the South East of the country, in particular London, much more adversely than the North. In London some retail premises are expected to see quite staggering increases of up to 400 per cent on their rateable value. However in the North of England, and the rest of the UK, the pattern is frequently reversed. In Leeds, for example, businesses fare much better with sizeable reductions in rateable values for many. Any reductions, although positive news, won’t be felt immediately and business rates bills are unlikely to reduce by the full amount in the short term, due to the system of transitional relief to be introduced by the government. The phasing period dictates that those London businesses which have seen their rateable values go up could only have to pay a maximum of 45 per cent increase per year, plus inflation, over the next five years, which will cushion the transition and see bills increase slowly. This effectively means that northern businesses that are owed a reduction will be helping to subsidise those seeing an increase and will see their bills slowly decrease over time rather than benefit from sharp reductions immediately. The big swings in valuation have been caused largely due to the delay in revaluation. Had revaluation taken place in 2015 and not been postponed by the government to avoid ‘sharp changes’ in rates, the gaps would have not been so wide. In essence, the £23 billion that business rates generates in the UK every year will still remain. It will simply be redistributed, although that is only a crumb of comfort if you are still paying too much. Expert advice from a professionally qualified rating surveyor should be sought even if your assessment has decreased as it could still be excessive.

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Case Study: University of York

The Practice has substantial experience and expertise in this specialist area of valuation having acted for the University of York and Newcastle together with a significant number of other educational establishments in the 1990, 1995, 2000 & 2005 lists, and now going forward into the 2010 list. There has been a significant increase in rateable values within the higher education sector between the 2005 and 2010 lists.

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