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Business rates are often described as a tax on occupation. However, as many businesses will know, liability also exists on vacant or under-utilised property, with very few exceptions. Of course, many more London office occupiers have now discovered this unfortunate truth during the Covid–19 lockdown.

The lockdown forced many businesses to close their premises, notably in the retail, leisure and hospitality sectors. However, the majority of office occupiers have also fully or partially closed their premises, with staff working from home where possible. Whilst some are now beginning to reopen, full office use will be difficult – if not impossible – whilst observing social distancing requirements.

It is clear that many businesses are not expecting to resume normal operations until 2021.

With many businesses not expecting to resume normal operations until 2021, office occupiers are finding out the hard way that business rates are also a liability on vacant or under-utilised property.

Expanded Retail Discount Scheme

In response to the crisis the Government announced wide ranging support and relief for businesses. The majority of those in the retail, leisure and hospitality sectors are now benefitting from a rates “holiday” for the 2020/21 financial year via the Expanded Retail Discount (ERD).

This only applies where the property is occupied. Notably, there are certain business types – financial services, medical services and professional advisors, for example – where the relief does not apply.

There is currently no emergency business rates relief for general office and industrial occupiers.

What can you do to mitigate the cost of business rates if you are not receiving any relief?

Whilst the Government has issued guidelines on granting relief, not all local authorities have interpreted this advice in the same way. First of all, if you have been refused ERD relief or don’t know if you are eligible, we recommend you seek professional advice. Fundamentally, here are 3 cost-saving possibilities worth exploration:

1. Empty property rates relief

You may consider applying for empty property rates relief if staff are working from home. This may apply for up to three months. Again, interpretation of what constitutes “empty” can differ between local authorities. Some have exercised a certain degree of discretion. Others seem determined to apply full liability, even on clearly vacant property.  Once again, seek professional advice.

2. Be creative with under-utilised space

One other possible route to secure savings would be to apply for discretionary relief for up to 3 months if your property is partly occupied. If your local authority is prepared to grant this relief, the rates liability is apportioned between the occupied and unoccupied areas.

This office plan illustration shows an example of a ratepayer in partial occupation - justifying an application for discretionary relief
This office plan illustration shows an example of a ratepayer in partial occupation – justifying an application for discretionary relief

3. Reducing the level of your rating assessment

Certainly, the lockdown restrictions have had negative impact on commercial property values. Therefore, even if you are eligible or already in receipt of any of the above rates reliefs, you should definitely consider taking additional action to reduce the level of your rating assessment to reflect this reduction.

We consider that reduced public transport services, station closures, social distancing measures and closure of the majority of retail, leisure and hospitality properties (amongst others) represent a Material Change of Circumstances (MCC) which justifies a reduction in value.

Reduced public transport services, social distancing measures and closure of the majority of retail, leisure and hospitality properties represent a Material Change of Circumstances which justifies a reduction in rateable value.

Discussions regarding this MCC have already begun with the Valuation Office Agency (VOA), the body responsible for setting the level of rates assessments. However, this is a complex matter and we would certainly advise consulting a professional adviser before taking any action.

2023 Rating Revaluation

The current Rating List came into effect on the 1 April 2017. At the time the next Revaluation was scheduled for 1 April 2022. Initially, the Government announced its intention of bringing forward the Revaluation to 1 April 2021, with values based on open market rental levels as at 1 April 2019. The VOA had largely completed this task and the necessary Bill was before the House of Lords when the lockdown began. Following criticism of the timing of a Revaluation in 2021 the Government announced that they were deferring the proposed change.

Subsequently, on 21 July the Government announced a further change. The next Revaluation was now to take place on 1 April 2023, with a valuation date of 1 April 2021. The expressed hope is that this will better reflect the effects of Covid–19 on property rental values.

Fundamental review of business rates

Broadly speaking, the Government’s objectives for the review are:

  1. reducing the overall burden on business
  2. improving the current business rates system
  3. considering more fundamental changes in the medium-to-long term

The Government has issued a ‘call for evidence’ from stakeholders. You can submit your evidence via this survey.  You should respond by 31 October 2020 – with views on the multiplier and reliefs submitted by 18th September. More information and alternative ways to respond can be found on the Business & Industry section of the UK government website.

How to reduce your business rates costs during Covid-19

About Paul Acres

Paul Acres

Paul has over 25 years experience in the property world. He provides business rates advice to occupiers of all property types across the UK - with a focus on central London office markets.

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