2010 RATING REVALUATION

Presentation by Tony How FRICSDirector of Davis Brown

1 Margaret StreetLondon

W1

Given to the Play Providers Association

NEC21 September 2010

Brief Introduction

• Business rates is a tax generally levied on the occupier.

• The Local Authority levies the rates on the occupier.

• The VOA (Valuation Office Agency) is the Government department responsible for maintaining the Valuation List i.e. the Rateable Values of all hereditaments.

• A recent Revaluation has taken place effective from 1 April 2010.

• The Valuation List will be applicable for the next five years.

• The Government sets the UBR (Universal Business Rate) every year.

Rateable Value Multiplier Basic Liability

Transitional Relief and other

supplements

Total Rates Liability

Your 2010/2011 rates bill – what it means

What is a Rateable Value?

Rateable Value: Set by the Valuation Office every five years, following a Revaluation. The current Revaluation took place with effect from 1 April 2010. The RV represents the Valuation Officer’s estimate of the rental value of the premises, as at 1 April 2008 (the antecedent valuation date or AVD).

The Rateable Value of a property is multiplied by the annual multiplier to give the basic liability:-

Rateable Value x Multiplier = Basic Liability

Transitional relief and any other adjustments are then made to the Basic Liability. This yields the total Rates Liability for 2010/2011.

Multiplier: Set by statute (normally at the end of the calendar year and effective from 1 April).

For 2010/2011 the multipliers are:-

England* 41.4p in £ (Small businesses 40.7p)Wales 40.9pScotland 41.4p in £ (Small businesses 40.7p)

(*Except the City of London which sets its own rate)

Transitional Relief: England only. Imposes a “smoothing” effect on rates bills (both upwards and downwards).

Rates bills change by a maximum amount year on year.

Maximum increases (in real terms):2010/2011 12.5%2011/2012 17.5%2012/2013 20%2013/2014 25%2014/2015 25%

Maximum decreases (in real terms)2010/2011 95.4%2011/2012 93.3%2012/2013 93%2013/2014 87%2014/2015 87%

This is applicable to large hereditaments, i.e Rateable Values of £25,500 or greater in Greater London, or £18,000 or greater outside Greater London. Different percentages relate to small hereditaments starting from 5% to 15% over five years. (rising rates liability).

Other supplements, Business Rate Supplements etc: Levied under new legislation from 2009. Intended to support new projects (e.g. Crossrail) up to a maximum of 2p in the £. Only payable if RV is currently above £50,000.

The Ratepayer has the right to challenge his Rateable Value by appeal. If successful, this will reduce the total rates liability.

How is Rateable Value calculated?

The 2010 Rateable Value represents the Valuation Officer’s estimate of the rental value of the property, assuming rental levels at 1 April 2008 – but assuming the property exists in its present physical condition and in good repair.

The assessment of value is normally based on rental evidence, where available, i.e.:-

– Rent payable on the play centre itself– Other rents payable on other play centres in the area– Other rents payable on other, similar properties in the area– Other rents payable on other play centres elsewhere

This evidence is then adjusted to give an estimate for the rent of a commercial lease on the property from year to year, on a hypothetical basis, at 1 April 2008.

In arriving at an RV the normal method of calculation is multiplying the Gross or Net Internal floor area by an appropriate rate per sq m.

Difficulties with Valuation

• Insufficient rental evidence (e.g. property may be freehold).

• Rent may include rent-free periods or other incentives not known to the Valuation Officer, giving a high “headline rent,” leading to excessive estimate of rental value.

• Rents on neighbouring properties may not be on comparable term.

• Physical condition of the property may have been altered since the Valuation Officer’s last inspection.

• Valuation Officer may have the wrong measured floor areas or may have measured the property using the wrong basis (i.e. Gross or Net).

• Use of the property, or parts of the property, may have altered since the Valuation Officer’s last inspection.

• Description of property may be inaccurate

Description of Play Centres in the 2010 List Play centres are still a relatively new part of the leisure sector.

So far there is no standard description for play centres on the new Rating List. Frequently, premises have been given descriptions within a broad range such as:-

– Play Centre and Premises– Children’s Play Centre– Activity Centre and Premises– Softplay Centre and Premises– Day Nursery and Premises

But in some cases play centres have been described on the 2010 List as:-

– Warehouse and Premises– Factory and Premises– Shop and Premises– Business Unit and Premises

Where a play centre has been described, e.g. as a warehouse, it is likely that this description represents the previous use of the unit, or its neighbouring units, and the unit has been valued accordingly. In this case the rateable value may be lower or higher than play centre values - depending on location.

Making an Appeal

Ratepayers may challenge their assessments on the 2010 Rating List by lodging an appeal with the Valuation Office, either themselves, or via an agent, such as a rating surveyor.

Appeals may be made at any time during the currency of the Rating List, i.e. between 2010 and 2015. However, if an appeal is unsuccessful, the ratepayer is not then entitled to lodge another appeal, unless there has been, e.g. a change in circumstances affecting the property.

A rating appeal must supply details of:-

– The property– The rent passing on the property, if any– The change in RV being sought– The date of the change being sought– The grounds for the change– The party making the appeal

Once an appeal is lodged and acknowledged by the Valuation Office, it is placed in a programme for discussion. The VO notifies the appellant that he is prepared to discuss the appeal between certain dates, to see if agreement can be reached.

This programme may not be scheduled to take place until several months after the appeal has been lodged. It is unlikely that the VO will be discussing any appeals against entries on the 2010 list until 2011.

There are proposals to introduce new rules for the conduct of tribunal hearings after January 2011. The ratepayer will need to comply with “Directions” and this will involve, prior to the Hearing, serving on all parties evidence to support its grounds for appeal.

Failure to comply with the Directions may result in the exclusion of any evidence at the Hearing and the probability of the appeal being struck off.

Successful Appeals

If an appeal is successful, the Valuation Officer will make the agreed alteration to the Rating List with effect from the date sought by the appeal. For the 2010 Rating List this date will typically be 1 April 2010.

The Valuation Officer will then notify the Local Authority that the Rateable Value of the property has been amended.

The Local Authority then re-calculates the rates payable on the property. Any overpayment, including backdated overpayments for previous years, is credited to the ratepayer.

If agreement cannot be reached, the ratepayer has the option of asking the appeal to be heard before the Valuation Tribunal.

Summary

• Business rates are a form of tax and now form a substantial part of the fixed outgoings of an occupier whether as a company or individual.

• The current business climate is still difficult, with the possibility of a “double-dip” recession.

• Businesses will wish to ensure that total outgoings are kept as low as possible.

• Play providers are a relatively new leisure sector. The valuation method for Rating Valuation has not yet been uniformly established across the sector.

• Our investigations show that Valuation Offices across the country have used a variety of methods to determine Rateable Value.

• It is important for ratepayers to check that the valuation of their premises is fair and consistent, so as to ensure that rates bills are not excessive.

• The Draft New Directions which are likely to be effective from January 2011 will place the onus on the ratepayer to produce evidence before the Hearing. Failure to comply with the new Directions may lead to the appeal being struck off.

2010 RATING REVALUATION

Presentation by Tony How FRICSDirector of Davis Brown

1 Margaret StreetLondon

W1

Given to the Play Providers Association

NEC21 September 2010