Crowe LLP UK recently hosted a half day seminar on Business Rates for Charities at its London offices. Below I summarise some of the key points discussed at the seminar, which was co-ordinated following discussions at CTG’s Annual Tax Conference in April 2019.
The speakers included solicitors Roger Cohen and Jessica Hopewell from Bryan Cave Leighton Paisner, me, Colin Hunter, a chartered surveyor from Lambert Smith Hampton (LSH) and Luke Wilcox a barrister from Landmark Chambers. Between us we covered the basics of rating, recent case law and how business rates apply to charities.
Rates are, on the one hand, a simple tax based on occupation using the notional rent of the property as a basis for the charge. The application of rates is however a complex matter needing careful thought and consideration for all but the simplest of cases, i.e. a small charity fully occupies one building for nothing other than charitable purposes.
At the CTG Conference, a Government Minister explained that business rates generate around £27bn of revenue in England and that charities benefit by over £2bn in charitable relief (for the most recent figures see here).
Rates as a source of revenue
In various incarnations, rates have been used as a source of revenue for Local Government for over 400 years. Despite, or possibly because of, this long history, there has been a recent spate of appeals running through Courts up to Supreme Court. The sums involved for both the Government and the ratepayer make disputes on: how to value properties; what is and is not to be included in the assessment, and; how to manage changes such as property redevelopment, very contentious.
The allowances given as either mandatory or discretionary reliefs are also coming under greater scrutiny, especially as Local Authorities now have to fund some of the charitable relief from their own already-stretched finances. This is leading to yet more litigations and Council’s rejecting claims for relief, event when that relief has been given for many years. Charities are forced to take their case to Magistrates or High Court.
Dispute over the basis of valuation
I explained the valuation issues especially in relation to museums which have been valued by reference to the cost of construction of a modern equivalent. Having taken the argument to Upper Tribunal (Lands Chamber) in 2017 for museums in York, it would have been reasonable to believe the matter had been settled in favour of the ratepayer. However, the argument was run for a second time by the Valuation Office Agency (VOA) in 2019 for a museum in Exeter occupied by Exeter City Council. The difference being disputed is whether the Rateable Value should be £445,000 or £1. The decision is still awaited at the time of writing.
This re-running of arguments was highlighted by Jessica Hopewell in her update on recent appeals. Two of the appeals she spoke about involved buildings which are being refurbished or reconstructed. The VOA fought an appeal all the way to Supreme Court in 2017 and then attempted to rewrite the meaning of the Supreme Court’s decision in an appeal before the Upper Tribunal (Lands Chamber) in April this year. The Upper Tribunal were highly critical of the VOA. It is now clear that if a building is being redeveloped then it should be reduced to a nominal figure until the building is again fit to occupy.
Should trading companies be valued separately?
Another major consideration for charities is whether spaces occupied by their trading companies should be valued separately or as part of the Charity’s main occupation. This is potentially a double-edged sword and was one of the main points of argument for the York Museums in 2017.
The success of a trading company could threaten the charity’s right to 80% mandatory relief if both are covered by a single rates bill. Conversely, separating out the trading subsidiary’s operational areas within a building will mean that no relief is given for that space and could lead to higher overall liabilities for the property. This position may change after the Supreme Court decides whether ATMs in supermarkets should be separately assessed or valued as part of the supermarket. Therefore, when thinking about rates liabilities, charities need to consider:
- What the correct level of Rateable Value for their building should be
- Who occupies their buildings and how properties are share, and
- What reliefs are available and whether the use of the charities properties puts those reliefs at risk.
Time is running out
The 2017 Rating List is due to expire on the 31 March 2021 (assuming the proposed legislation is passed in time). Working backwards from that date, if charities want to challenge either the level of Rateable Value for their properties or, the way the properties have been identified, the process needs to be started before the 31 March 2020. Time is getting short!
All in all, it is essential that advice is taken and that is taken soon if there is any reason to question whether the amount of rates being charged is fair. In the first instance, take advice from a suitably qualified and experienced chartered surveyor.
Colin Hunter is a business rates expert and Director at Lambert Smith Hampton (LSH).