Business rates and their impact on further education establishments
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.