Impact of business rates on business Contents

2Complexity of the current system

45.A number of organisations42 told us that the business rates system is more complicated than it needs to be. For example, the Royal Institution of Chartered Surveyors said that “English businesses are hampered by an onerous and complicated process.”43 The three main reasons given in evidence to this inquiry for the complexity of the system were reliefs, the Check Challenge Appeal (CCA) process, and the basis for valuation. We consider each in turn, including whether HM Revenue and Customs programme “Making Tax Digital” has a role to play in making the business rates process easier for ratepayers. We also consider the effect that spending on property improvement or new plant and machinery has on the level of business rates that a business has to pay.


46.The system has been made more complex by the introduction of a series of reliefs which allow businesses that meet specific criteria to obtain discounts to their business rates liability. Some reliefs are automatic, others must be applied for, some are permanent while others are temporary. We note that whether or not the reliefs are applied automatically or whether a business has to apply for them, can be at the discretion of each individual billing authority.

47.Current reliefs include:

48.Revo, a not-for-profit organisation representing the retail property and placemaking industry, said that the current reliefs system has made it “difficult for a business–especially SMEs without in-house rates expertise–to know which, if any relief, it is entitled to.”45

49.A further level of complexity is added to the relief system by European Union state aid restrictions. These cap the total sum of discretionary money a company can receive from a rate relief scheme at €200,000 over a three-year period.46 Virgin Media told us this has meant that many larger businesses have either had little or no benefit from the available reliefs.47

50.Tom Emlyn Jones, President of the Rating Surveyors Association questioned the fairness of reliefs:

I would encourage you to row back on reliefs. They are sticking plasters because the rates are high and one person’s relief is fair for them but it means that it is unfair for everybody else. I happened to make a note of requests for further reliefs in the representations you have had, including pharmacy relief,48 grassroots music venue relief,49 ecological credits,50 bookshop relief,51 open workspace relief52 and so on. I could go on. My point is that, if you open the door to reliefs, everybody will be saying, “Can I have a bit of that?”53

51.The number of reliefs that are needed for business rates to work indicate a broken system. Each additional relief adds a further layer of bureaucracy to an already complex system. HM Treasury should review all business rate reliefs to ensure that they remain necessary. We discuss later the extent to which business rates align with government policy to encourage investment. We note that the system of reliefs have a part to play in this.

Administration of reliefs by billing authorities

52.Billing authorities collect council tax and business rates on behalf of Local Authorities. There are 361 billing authorities in England54 recognised by the Valuation Tribunal Service, and 343 local councils, or local authorities, in England.55 We heard evidence that authorities do not take a consistent approach to business rates reliefs.

53.Evidence submitted by the National Federation of Retail Newsagents questioned how fairly reliefs are applied by local authorities and said that “the tax relief system should be consistent across local authorities to avoid disparities”.56

54.The British Retail Consortium, a retail trade association, raised concerns over “the number [of reliefs] and inconsistent application of reliefs [which] makes the system very hard to navigate, even, and perhaps more so, for larger businesses due to the number of local authorities in which they operate”.57

55.Multi-site operators, such as the National Trust, drew our attention to inconsistencies in how billing authorities are operating and presenting bills to businesses. In its submission it wrote:

We receive almost 1,000 individual bills from most of the Local Authorities throughout England and Wales. These bills are inconsistent, presented differently and some provide inadequate information. Similarly, the forms, for example regarding charitable relief, are all different with some submitted online, others paper only; many ask irrelevant questions regarding discretionary relief when mandatory relief is the subject of the application.58

56.Given the reported inconsistencies in how reliefs operate between billing authorities, we asked the Local Government Association whether there was any requirement for billing authorities to actively tell a business that it might be eligible for reliefs. It told us it was not a billing authority’s responsibility to do so:

It is the job of the billing authority to work out and apply reliefs as part of its billing function. Some reliefs may be applied automatically, such as small business rates relief in many cases. It is then the responsibility of the ratepayer to check that they are in compliance with state aid regulations. Some other mandatory reliefs, such as charitable relief, may require the ratepayer to apply and to demonstrate that they meet all the conditions for the relief. Ratepayers are responsible for notifying any changes of circumstances affecting eligibility for reliefs to the billing authority.59

57.At our outreach event on 20 May 2019, we heard from one business which should have been entitled to Small Business Rates Relief but the Billing Authority had not applied the relief, nor did it tell the business of its eligibility. At the time of the event, that business was awaiting a refund for three years of business rates.60

58.We heard concerns that discretionary reliefs have been applied inconsistently by local authorities. The CBI wrote to the Committee about a leading logistics business that had been benefitting from empty property relief on a 500,000 square foot warehouse. Despite there being “multiple business requirements for a small percentage of the space” within the warehouse, the logistics company did not dare use any portion of the warehouse for fear of “the risk of triggering the full business rates liability.” This risk was caused because, despite their local authority having the discretion to award “partly-occupied relief”, the guidance on eligibility was so opaque that the company had no certainty over whether their application for that discretionary relief would be successful.61

59.All 361 billing authorities have the autonomy to run their business rates system as they see fit. There is no obligation for billing authorities to help businesses understand the reliefs that they may be eligible for. There is no requirement for billing authorities to be consistent in whether reliefs are applied automatically or not.

60.The Ministry for Housing, Communities and Local Government (MHCLG) should work with all billing authorities to create a single comprehensive guide on how business rate reliefs are operated by the individual billing authorities. This would result in consistency in approach by all billing authorities. It would also provide clarity for business on what discretionary reliefs they may be eligible for, and what steps must be taken to claim them.

Transitional relief

61.When a revaluation occurs, the rateable values for many properties will change significantly resulting in a significant change in their business rates liability. Transitional relief was introduced to limit, cap, or delay the potential increase or decrease in the business rate liability that a business would otherwise have faced as a result of a significant change in its properties’ rateable values. Upward transitional relief exists to limit the speed at which a bill can increase, and downward transitional relief limits the speed at which a bill can decrease.

62.The reason for both upward and downward transitional adjustments is to ensure that revaluations are fiscally neutral to the Exchequer. The limits on the percentage increase or decrease in a business rate liability are based on the overall rateable value of the property. The phasing arrangements brought in with the 2017 revaluation are outlined in the following tables, which show that properties with the smallest rateable values benefit from the smallest percentage increase in their bill when the rateable value goes up, and the largest percentage decrease in their bill when the rateable value goes down.

Table 1: If your bill is increasing

Rateable value

2017 to 2018

2018 to 2019

2019 to 2020

2020 to 2021

2021 to 2022

Up to £20,000 (£28,000 in London)






£20,001 (£28,001 in London) to £99,999






Over £100,000






Table 2: If your bill is decreasing

Rateable value

2017 to 2018

2018 to 2019

2019 to 2020

2020 to 2021

2021 to 2022

Up to £20,000 (£28,000 in London)






£20,001 (£28,001 in London) to £99,999






Over £100,000






Source: Gov.uk62

63.A significant problem with downwards transitional relief for business at present is that the 2010 rating list was based on pre-financial crisis rental market data, when rental prices were significantly higher.63 When the 2017 rating list was brought in, some businesses and sectors saw a significant decrease in rateable values. However, for many businesses, due to downwards transitional relief, the benefits of having properties with lower rateable values, and the lower business rates that come with them, have not been passed on in full.

64.River Island, a fashion retailer, told us in its written evidence that “downwards transition ensures that there are many cases where retailers will never pay the true rates liability for their premises”.64

65.The issues with transitional relief are exacerbated by the effects of inflation. Blake Penfold explained how inflation affects downward transitional relief:

In [2017–18], the maximum reduction of 4.1 per cent was offset by a 2 per cent inflation increase, thereby representing a net maximum reduction of 2.1 per cent. In [2018–19], the maximum reduction of 4.6 per cent was offset by a 3 per cent inflation increase, thereby representing a net maximum reduction of 1.6 per cent. The effect of this transitional scheme is such that larger properties, which should be seeing significant reductions in rates liability, will not benefit from those reductions during the life of the 2017 rating list.65

66.CBRE, an international commercial real estate company, was concerned that downward transitional relief could undermine the Government’s attempts to revitalise the High Street as it “forces struggling ratepayers to subsidise those whose businesses are thriving” and that “downwards transition is thus at cross purposes with regeneration objectives”.66

67.Concerns around the effect of downward transitional relief on business are not limited to the High Street. Catherine Gras, Chief Executive of Storengy, a gas storage company, told us that:

We got a 60 per cent reduction in the rateable value, but we will never see the benefit of it in this valuation period. We are seeing something like -3 per cent. We are still paying more than double what we should be paying because of the transitional relief downward [ …] In 18 years, if nothing changes, which is of course not the reality, we will finally be back to the right level of valuation.67

68.Further concerns were raised around the speed at which the new transitional relief timescales were introduced for the 2017 rating list. In oral evidence Kate Nicholls, Chief Executive of UKHospitality, a hospitality trade association, said that “businesses only had about four months’ notice” to react to the two-year transitional relief period, rather than the five year period that had previously been in use. Only having four months to prepare for this policy change put pressure on business cashflows.68

69.We recognise that transitional relief exists to minimise the movements in any particular year that result from changes in valuation, and that many businesses will have benefited from such relief. However, the decrease in open market rental valuations in the 2017 rating list needs to be reflected more quickly in rates bills for those businesses who are paying significantly higher rates than the open market rental value of their properties would normally determine. The current transitional relief system has kept rate bills artificially high over a prolonged period for many businesses.

70.We recommend that transitional relief is redesigned to ensure that before the end of a rating list, businesses can complete the transition, upward or downward, to their correct rateable value. By the end of the rating list’s life, all business rates liabilities should represent the period’s rating list value, adjusted for inflation. This will mean that for the next rating list, there would not be any need for transitional relief related to the previous rating list’s values.

Alignment with central government policy

71.Many witnesses were concerned that the current business rates system is at odds with wider central government policy. For example, the National Farmers’ Union (NFU) and Vtesse Harlow Limited, a telecommunications company, noted that while the Government is looking to increase the use of renewable energy sources69 like solar power business rate policy immediately penalises investment in this area. Vtesse Harlow told us that:

The VOA introduced business rates on solar panels on schools and larger instalments. This has had a chilling effect on further investment in renewables which has exacerbated the effect of falling tariff rates.70

72.Virgin Media said it had experienced a “dramatic increase in business rates liability since 2017” for its telecommunication network, which was undermining the “Government’s priority [ … ] of having ten million premises connected to full fibre and a clear path to national coverage over the next decade”.71

Incentives to invest

73.We were asked by organisations72 like the British Beer and Pub Association, a brewers and pub membership organisation, to support the introduction of an investment relief. They said that:

Investment is the lifeblood of pubs which need to evolve to meet changing consumer demand. Up to £1.5 billion is invested in Britain’s pubs each year. Pubs are almost uniquely valued on the basis of turnover and this can be a significant disincentive to investment. Investment in pubs almost certainly leads to an immediate revaluation based on a presumption of increased turnover. However, any increased profitability and return on investment will inevitably be realised over a longer period. 73

74.The Woodhaven Trust, advocates for land tax reform, observed that the current system acts as a disincentive to investment, which can adversely impact wider government policies such as lowering the UK’s carbon emissions. They said:

At the crux of the matter is the fact that they are a tax on long-term investment; if a new building, dam, or blast furnace is built, recurring tax is paid on that investment. And if an existing property is improved through the addition of a lift, solar panels, or air conditioning, its tax bill increases. While it is reasonable to tax the increased profits that investment may lead to, it is not reasonable to tax investment itself.74

75.The Energy and Utilities Alliance, a not-for-profit trade association in the energy sector, told us that “Gas storage operators and developers are currently considering various projects producing and storing hydrogen, a zero-carbon solution that could become a serious option to decarbonise the UK economy in the future.” However, as this would necessitate “pilot projects” to establish if they are viable and given the immediate impact on business rates, there is concern about whether these projects are viable. They went on to say that:

In the current context, it is likely that these projects will be taxed using the contractors’ basis. Using the contractors’ basis will certainly increase the hurdle for such projects to be launched.75

76.The Valuation Tribunal Service describes the contractors’ basis as “a method of valuing a property for rating purposes which looks at the cost of replacing the building and then analyses this cost into an annual amount over a certain period”.76 They explain that it is used in circumstances where there is no relevant rental information available that can be used to value the property.

77.Scotland introduced a ‘business growth accelerator’ relief77 to support investment. This relief is designed to provide a twelve-month respite between completion of a new property and the associated business rates bill. The relief also means no business rates are levied on a new property until it is occupied and provides a twelve-month respite from any business rate bill increase when a business expands or improves the property. This means that when a business makes a capital investment, it has twelve-months to benefit from the investment before its rates bill increases.

78.Several organisations78 have championed the introduction of a similar system for England. For example, Unibail-Rodamco-Westfields, specialists in owning, developing and managing premier retail assets, told us that the Government should look to introduce a “Business Growth Accelerator”. They told us that the introduction of such an accelerator would “support and incentivise investment in all sectors so as to provide a level playing field.”79

79.Rachel Kelly, Senior Policy Officer at the British Property Federation, was supportive of the concept but advised caution around the incentives available for new developments. She told us that if such a relief were introduced for England, care would need to be taken around implementation. She warned that that it should not “over-incentivise new development” but balance the relief to support the “maintenance of and improvements to our existing property stock.”80

80.We asked whether 12-months was an appropriate level of time for this relief. Catherine Gras, Chief Executive of Storengy, a gas storage company, said that “when you are talking about investments that you expect the payback to be over about 25 years or 30 years, okay, 12 months is better than nothing.”81

81.We raised with Jesse Norman MP, Financial Secretary to the Treasury, concerns around the disincentives to investment. He told us that “there are disincentives and incentives involved across the whole sweep of Government support for investment in green energy.”82 He went on to say that he “used to be a Transport Minister and we have introduced enormous support for electric vehicles and for offshore wind. This is a very green economy.”83

82.The current approach to business rates acts as an immediate significant disincentive to investment. Such an approach contradicts wider government policies such as reducing the UK’s carbon emissions through investment in greener technologies or improving productivity.

83.HM Treasury needs to revise the business rates system and implement change to support and encourage investment by businesses. When considering the reforms necessary to achieve these changes, HM Treasury may wish to consider lessons learnt by devolved nations when they have made similar adjustments to their business rates system.

Assets included within business rates valuations

84.Rateable values are established by the VOA, who use the Rating Manual84 as its guide. Part 5 of Section 6 of that manual85 sets out the various classes of plant and machinery that are included in the business rates calculation. Roughly speaking, the plant and machinery that is included in the valuations are part of the property in question, and not easily removable. The CBI told us that the scope of what should be included “was last reviewed in 1993.”86 Groupe PSA, the second largest car manufacture in Europe, told us that despite this review in 1993, the data used is “ based on a regime dating back to the 1960’s.”87

85.When these categories were introduced, and last reviewed, the plant and machinery critical to running a business were very different to the modern economy. In the modern business world, business critical systems include items such as IT systems, which are not included in the rateable value calculation. This has led organisations like Make UK, a membership organisation that provides of political representation for the engineering, manufacturing and technology sectors to call for the same treatment for plant and machinery. They told us that the current system is unfair to the manufacturing sector and called for “the removal of plant and machinery from business rates as it acts as a disincentive for manufacturers to invest.”88

86.The CBI also took the view that the current scope of plant and machinery included in the business rates valuation is not fit for the modern economy. They cited the following example to illustrate their point:

Energy efficient investments will increase a property’s rateable value and therefore the business rates bill, which could discourage that investment from taking place. This is inconsistent with the Government’s initiatives on energy efficiency and climate change. Similarly, the Government has set out ambitious goals to improve UK digital connectivity, which is contrary to a rates system which raises rateable liability for full fibre networks in the long term. This short-term relief [ … ] is inadequate to address the structural problems with the business rates system.89

87.Groupe PSA told us that they advocate the removal of plant and machinery from rateable value because:

The inclusion of such assets in the rateable value increases the cost of investing in energy saving equipment or improvements and new plant and machinery, be that to enhance productivity or to satisfy regulatory requirements. Removing them from the rateable value calculation will also remove the distortion between different forms of business–as some businesses’ equipment will form part of the Business Rates base whereas other equipment is completely exempt from (not being fixed to or built into the facility).90

88.Make UK also told us that the inclusion of plant and machinery in the business rates calculation is also a disincentive to growth. They said:

A survey of Make UK members revealed 42 per cent would invest more if plant and machinery were removed from the business rates calculation. For an R&D intensive sector such as manufacturing, investments in plant and machinery are essential not only to able to manufacture day-to-day products, but also to be able to continue to produce new and innovative developments that are crucial to long-term business, as well as economic, growth.91

89.We raised their concerns over the inconsistency between how rateable value is calculated for businesses with plant and machinery covered by the Rating Manual definition, and those without, with Ministers. When asked by the Committee if he recognised the inconsistency, Jesse Norman MP, Financial Secretary to Treasury, he responded saying “ Yes. That is interesting, thank you.”92

90.Mike Williams, Director Business and International Tax at HM Treasury, told us that “There is advantage in sticking with the legal definition, broadly, of what you take with you and what you could leave behind, because I think you get clarity from that.”93

91.When the Committee asked Mr. Williams if that meant the definitions were kept under active rather than passive review, he responded that “We are getting court cases that produce new patterns against which that definition is applied. We then monitor whether the result in policy terms from those court decisions seems satisfactory.”94

92.The Government needs to ensure that business rates align with its aim to boost productivity and do not undermine its intentions to encourage businesses to invest in energy efficient technologies and better data connectivity.

93.The classes of plant and machinery that are included in the business rates calculation were last re-defined in 1993, when the UK economy operated very differently. Many modern businesses have moved away from being dependent on plant and machinery. It is therefore unfair on the manufacturing sector for their business rates valuation to include their essential operating equipment, where other businesses are not equally affected.

94.The Government should look at where case law currently stands on what assets are included in rateable values and should consider whether legislation is required to ensure the categories are fit for the modern economy. If it is the Government’s stated aim to incentivise the transition to a green economy, it should be proactive in ensuring that businesses that invest in green assets such as solar panels or energy efficient machinery are not subjected to higher business rates as a result.

95.HM Treasury must keep the definition of what is included in a rateable value up-to-date and ensure that that definition supports wider government targets to support business growth.

Check Challenge Appeal (CCA)

96.Alongside the 2017 valuation listing, the VOA introduced a new business rates appeal system for England called “Check Challenge Appeal” (CCA). Melissa Tatton, Chief Executive of the VOA, told us that a new system was introduced to reduce the number of speculative appeals being made because under the old system “it was possible to put in a speculative appeal with little or no evidence.”95 This resulted in “approximately 1.1 million appeals made in England and Wales over the life of the 2010 list [ … ] and 70 per cent of them resulted in no change”.96 The VOA told the Committee that there were around 2 million assessments in the 2010 rating list for England and Wales. Under the old appeal system, an assessment could be subject to duplicate and sometimes multiple appeals made on different grounds, some of which were purely speculative and backed up with little or no evidence.97 This created an unprecedented workload for the VOA. The new system was designed to require the ratepayer to supply more detailed evidence in order to contest a valuation.

97.CCA has introduced a three-stage process where a business can carry out the following tasks through the VOA’s online portal:

98.If a business is not able to reach a satisfactory resolution through Check and Challenge, it can proceed to the appeal stage which is then administered by the Valuation Tribunal for England.

Box 3: Timeframe for Check Challenge Appeal

Source: Treasury Committee

99.The VOA’s previous appeals system needed to be replaced. It made it too easy for businesses to make speculative appeals and created an unsustainable workload for the VOA.

Response times

100.We heard concerns from businesses, both large and small, about the speed of response from the VOA, as well as the time it takes to progress a case through Check Challenge Appeal (CCA). Under the CCA process a business must complete a Check and a Challenge before it can move to the Appeal stage, something the legacy system did not require.

101.The current timescale for a Check Challenge and Appeal is as follows:

(1) Once a business has registered on the system it can take a maximum of 15 working days for a claimed property to be approved.

(2) A business can then request valuation details which can take a maximum of 20 working days.

(3) Once a Check has been made, a business can only proceed to a challenge once it has received a response from the VOA or a maximum of 12 months have elapsed.

(4) Once a Challenge has been made the VOA has 18 months in which to respond before a business can proceed to an Appeal.99

(5) This can mean that in extreme cases, a business could “potentially wait 950 days before it can lodge an appeal against its rateable value”.100

102.The current response timescales for the Check and Challenge and Appeal process were introduced by secondary legislation, under Section 143 of the Local Government Finance Act 1988.101 The Act allowed for them to be introduced by the ‘negative resolution’ procedure, which effectively meant they were never debated in the House of Commons.

103.The VOA told us that as at 31 March 2019, 16,000 appeals remained outstanding from the 1.1 million appeals made to the 2010 listing, of which 320 relate to appeals before March 2013, and 7000 relate to appeals between April 2013 and March 2016.102 The VOA told us that they were “on track to meet [their] commitment of clearing [the legacy appeals] by September 2019.”103

104.The VOA told us that “In 2018–19, [it] achieved 79 per cent of checks within three months” against its target of 90 per cent, and that in the first quarter of 2019–20, it had “gone up”. With Challenges, the VOA said it had experienced “quite low volumes” with “81 of [the] challenges resolved within the 12-month period.104

105.The VOA were not able to able to tell us what they thought a speedier and more reasonable response timeframe would be for completing Checks or Challenges, but did say that any revisions to the existing timescales would need to “take into account are resourcing, funding, IT and data.”105

106.The National Hairdressers Federation, a trade association for hairdressing, barbering and beauty salon owners, raised concerns that the long responses times experienced with CCA had a negative impact on businesses having confidence that their bills are “fair and accurate”.106

107.Ojay McDonald, Chief Executive of the Association of Town and City Management, a not-for-profit membership organisation to support healthy high streets, told us that he “would not be surprised if a number of businesses that are not with us any more should have had something from the appeals system but just did not get it in time”.107

108.We asked the VOA whether there was anything they could do to help businesses experiencing financial hardship. The VOA told us that:

There is already a process for those suffering financial hardship, which we prioritise. If a particular business is suffering financial hardship and thinks its rateable value is wrong, it needs to let us know about that [ … ] We will prioritise those cases. We try to turn those around within two months.108

109.We received evidence from Jolly Jumpers Play Zone, a children’s soft play area, that would appear to contradict this timeline. They told us that:

With the extortionate business rates, I feel that we will have to close within the near future, with a loss of the facility to the local community and visitors to the area. This has been pointed out to the VOA several times, and despite assurances that our case would be treated as urgent, we are now almost 2 year in and not really got any further to resolving the matter.109

110.We also received evidence from Newcastle City Council which stated that appeals are “a huge risk for Councils”.110 If a property is subject to an appeal it creates uncertainty for a local authority as to whether it will receive the full business rates for that property or not. The longer the appeals process, the longer the uncertainty.

111.It is unacceptable that there are still appeals outstanding from the 2010 listing, years after the appeals were first raised. The VOA must resolve these appeals as a matter of urgency. Such long delays bring the work of the VOA into disrepute and undermine trust in the UK tax system. No business should be waiting for over two years into the next rating list for their checks or challenges from the previous rating list to be resolved.

112.The current statutory response times are too generous. No business should have to wait up to two and half years for their appeal to conclude. We recommend that the Government introduces new secondary legislation under Section 143 of the Local Government Finance Act 1988 to reduce the statutory limit for both Checks and Challenges to a more reasonable timeframe, preferably a maximum of six months each.


113.Concerns were raised around how the new CCA process was structured, and about a lack of transparency from the VOA, which made it difficult for businesses to contest their rating. The Altus Group, a provider of independent advisory services, software and data solutions to the global commercial real estate industry, told the Committee that:

The new appeal system, Check Challenge Appeal, lacks transparency: It places no obligations on the VOA to explain how a rateable value has been set and puts the onus entirely on the ratepayer to prove they have been over-assessed. Few ratepayers have access to the evidence to understand their rateable value. The VOA is under no obligation to provide it before the appeal stage, which might follow years of financial hardship for a business. If we want a responsive and efficient appeals system, the ratepayer should be provided with the evidence used at the initial ‘check’ stage. The VOA only provides information at present if it considers it reasonable to do so.111

114.Accessible Retail, a representative trade body for retail warehouse and retail park, expanded on these concerns saying “the new CCA system lacks transparency and the process requirements imposed are posing a significant impediment on appellants from effectively claiming properties [the process of designating a property as belonging to your business] and their agents from reviewing the assessments and suggesting changes. All this is a prerequisite to the submission of a formal Challenge”. The Altus Group said that the online portal was “not fit for purpose” which “amounts to being denied access to justice by unduly onerous, laborious and burdensome procedures.”112

115.A variety of organisations, including both individual businesses and local authorities criticised a lack of transparency around the basis for valuations.113 One example came from the British Property Federation which said that:

The valuation process is not transparent which leads to a greater number of appeals and general uncertainty. CCA has not helped provide transparency and has put undue pressure on business.114

116.When we raised concerns about transparency with the Chief Executive of the VOA, she disagreed it was an issue. She told us that “there is a frank disclosure on both sides, including the agency, of the evidence” and that the VOA “are providing more information at an earlier stage under CCA than we would have done under the 2010 appeals”.115

117.The VOA told us that they need to abide by the Commissioners for Revenue and Customs Act 2005.116 They explained that the legislation requires the VOA to make sure that any provision of information is necessary, relevant and proportionate to their function. They do not consider that confidential rental evidence meets that legal requirement.117

118.We asked the VOA if one of the drivers behind the current approach to transparency was the property industry’s desire to avoid the public sharing of their rents and leases data. Alan Colston, Chief Valuer at the VOA, confirmed that for “certain elements” this was correct.118

119.Subsequently to Mr. Colston’s statement, we received supplementary evidence from Revo contradicting this view:

We believe [with] positive reforms such as adopting annual revaluations at the earliest opportunity with transparency such that the VOA justified its assessments to ratepayers by supplying the underlying rental evidence, appeals would fall away dramatically and become the exception not the rule as ratepayers would be satisfied with the explanation supplied to them and would not see any need to challenge their valuations or the benefit of a successful appeal would lead to a saving in rates payable for one year only.119

120.We raised the concerns around the transparency of the CCA process with Ministers. Rishi Sunak, the Minister for Local Government, told us that he felt that VOA had a balanced approach between providing users with information and protecting the confidentiality of other ratepayers’ rental values:

What you will hear as a criticism is, “We get into this check, challenge process and we have to show all our cards, and the VOA doesn’t have to show theirs.” [ … ] Having looked into it, I think that is slightly unfair. If you submit a check, you get the information on how the valuation of your property was done and which bits were done in which particular way—the methodology for it. You might not get the exact rent that they have used from the building opposite or whatever it is. The reason for that is they obviously have a broader duty, which might well be to speak to HMRC and so forth about taxpayer confidentiality and ensure that it is proportionate. As you get further down the process, they share more information. What they cannot do at the appeal stage is rely on a piece of information that they have not previously shared with you.120

121.Other countries have taken a different approach to addressing the call for increased transparency from their ratepayers. Jerry Schurder, Head of Business Rates at Gerald Eve LLP, highlighted two alternative methodologies that could be used:

There are two ways of ensuring that a business can be satisfied that its valuations are fair and accurate.

In Johannesburg, the ratepayer can click and see the primary evidence used, and he can click again if he wants to see the secondary evidence that underlies those valuations. There are countries where much greater data is available.

The alternative is to follow the Republic of Ireland’s route, where there is a public lease register, and absolutely every single element of information about a lease is available in the public domain.121

122.The VOA considers the level of information it is providing to ratepayers is sufficiently transparent. However, the evidence we received from business ratepayers, across a variety of sectors, shows that many businesses do not agree. The VOA has a duty to maintain trust and confidence in its appeals process. Where there is a legislative block on providing a ratepayer with all relevant evidence used to establish a property valuation, the VOA must ensure the ratepayer understands the reasons why such evidence is being withheld. The VOA should also monitor and report to us annually how often it denies transparency requests.

Functionality and ease of use of Check Challenge Appeal interface

123.The VOA was designing the new CCA process, and the timeline for its implementation, while the Government was signalling its intent to reduce the number of small businesses that would need to engage with the system.122 The Government indicated this intent through three successive Budgets and Fiscal Statements which reduced the number of small, single-site businesses that would have to pay business rates. These were as follows:

124.Alan Colston, Chief Valuer of the VOA, told us that when the CCA process was launched on 1 April 2017, it was “an individual system [whereby] you had to individually check and challenge. It was functional and live, and it was tested, but [the VOA] have improved it substantially for large ratepayers and their advisers over the last 12 months.”126

125.The CCA system has been in existence for just over two and half years. During that time the system has remained in ‘beta’ mode. The VOA told us that this is so that it can “continue to look at other opportunities”,127 rather than the system still being in its trial phase.

126.Whilst noting that the VOA has introduced additional functionality since the system went live, we were told that the VOA’s approach had undermined business’ faith in CCA. Gerald Eve LLP listed a number of problems it had identified with the CCA portal. These included:

127.In Wales, the VOA allows a business to complete a single ‘Authorising your agent’ form129, allowing a business to authorise an agent for multiple properties. Mr. Colston told us that the Welsh system was based on the same system used for the 2010 list.130

128.In response to our questions about how the VOA was addressing the functionality gaps within CCA, the VOA told us that in its May 2018 improvement plan, the VOA aimed to allow business to “create multiple property links through an API”131 as one of its key features. However, in the evidence mentioned above, witnesses told us that the API was not yet “fully operational in the Live environment”.132

129.Before its implementation of CCA, the VOA held a consultation to explore whether the proposed system would be suitable from a business perspective. Following a Freedom of Information request, it was reported that of the “287 responses to the consultation, not a single company, trade organisation or individual wrote in support of the proposed system.”133 Following this consultation, the VOA implemented the proposed system albeit with some amendments to address the concerns of ratepayers.134

130.However, many witnesses criticised how intrinsically complicated the CCA process is to use. British BIDs135, a membership organisation that provides advice, training and services to business improvement districts, said that businesses have “to pay for professional advisors to navigate the complex system [which] cannot be right.”136

131.GL Hearn Limited, a property consultancy firm, told the Committee that “CCA is proving very difficult for ratepayers and their advisers to navigate. It is acting as a serious impediment to ratepayers being able to understand the evidence on which their [Rateable Value’s (RVs)] were based at the revaluation, and an obstacle to any challenge to those RVs.”137

132.When we asked the VOA whether an individual without any professional assistance would be able to navigate the system on their own, the VOA said that “it is quite possible, and people do so”138 and that the summary valuation can be accessed online and would “provide the links to over 200 practice notes that explain [their] approach”.139

133.We also received evidence from businesses contesting whether the information available and the functionality of the CCA portal were fit for purpose. John Lewis, a retail partnership with a chain of high street stores and other business properties, told us that it had taken them a year to register their business and properties onto CCA140. The VOA stated that they did “not recognise a year for registration”, and qualified that saying that it was “probably that [John Lewis was] not yet using the application that [the VOA] launched, which includes the multiple property linking functions and the API141 for check.”142

134.In response John Lewis said that “it did take the Partnership over a year to complete the process of registering all of its properties on the system, primarily because registration is a very manual and time-consuming process which is not set up with companies with multiple properties in mind.”143

135.It is unacceptable to bring in a system that creates so many difficulties for ratepayers. The Check Challenge Appeal process should have been designed so that at its initial implementation in April 2017 it had more functionality than the system it was replacing. In particular, it should have been possible for businesses with multiple properties to authorise an agent to work on their behalf, as firms were able to do previously.

136.Bringing a new system online with less functionality than its predecessor has eroded public confidence. Whilst the VOA has improved the functionality of the system for multi-site and larger businesses since Check Challenge Appeal was introduced, these issues were known about before implementation. They should have been addressed before the system went live.

137.The overwhelming evidence is that the VOA’s systems do not work for ratepayers with multiple properties. There continues to be a disconnect between how the VOA and the users of the Check Challenge Appeal view its ease of use and complexity. The VOA must make sure that ratepayers with multiple properties are able to use its systems easily and that its systems are not creating unnecessary additional bureaucracy.

Making the most of ‘Making Tax Digital’

138.HMRC’s programme ‘Making Tax Digital’ is designed to make it easier for “individuals and businesses to get their tax right and keep on top of their affairs.”144 At present this programme is focussed on VAT and Income Tax. We have considered whether the programme should be extended to include business rates, which is not included in the programme at this stage.

139.The Institute for Directors told us that HMRC ought to extend its efforts around Making Tax Digital “to support firms to apply for reliefs, and allowances, as well as pay their business rates.”145

140.The Institute of Chartered Accountants in England and Wales (ICAEW), a professional accountancy membership organisation, voiced the opinion that through using the Making Tax Digital platform, the Government could make better informed decisions about how to support the business rates system and the ratepayers. They said:

The government should be able to collect more information about business activity through its making tax digital programme and should therefore have greater capabilities to assess where in the economy rates are a particular burden.146

141.River Island, a fashion retailer, suggested that the VOA could benefit from a “’trusted trader’ or ‘self-assessment system’” that would “improve accuracy and reduce the burden on the VOA”147. This idea was echoed by business rates consultants GL Hearn Limited, a property consultancy firm, who told us that such a system would “would allow ratepayers to amend the rating list themselves between revaluations. In essence, this would be a form of partial self-assessment, but with appropriate safeguards.”148

142.Jerry Schurder, Head of Business Rates at Gerald Eve, an international property consultancy firm, told us that it was an idea “worthy of investigation” but also cautioned that there were associated risks. He provided the following example:

Tesco would be a very good example of a business that could self-assess for business rates, because it has knowledge of the market in which it operates—it is a fairly tight market, in many cases—and it could therefore self-assess and be a trusted ratepayer. However, it may feel aggrieved if it discovers that Sainsbury’s has declared a lower basis of valuation, which has been accepted because Sainsbury’s is also trusted. That then becomes a race to the bottom, and at what stage will they no longer be trusted?149

143.HM Treasury should work closely with the VOA and HMRC to develop a timetable to migrate business rates onto the ‘Making Tax Digital’ platform. The migration needs to learn from the lessons of bringing Check Challenge Appeal online ensuring that there is no loss of functionality with the transition.

144.Moving to the ‘Making Tax Digital’ platform would give the VOA the opportunity to revisit the issue of user authentication and to improve the verification process, for example through alignment of business rates with VAT returns. There may also be scope for further authentication in future as other business taxes are brought into the system.

Basis for valuation

145.For various reasons, there are properties for which there is no open market rental value information available that could be used to determine a rateable value, for example an underground gas storage facility.150 In these instances, the VOA uses alternative methods such as “the contractor’s basis of valuation”151 to determine a rateable value based on a hypothetical calculation of, very broadly, how much it would cost to build a replacement of the building under consideration. This basis of valuation presents challenges because it requires valuers to apply their judgement to a hypothetical situation.

146.We received evidence from the Institute for Fiscal Studies stating that business rates themselves could change the rental basis for how a property is valued. They wrote:

Economic theory predicts that, in the long run, (higher) business rates will mostly be reflected in (lower) rents, passing the burden of the tax from the occupiers of property to the owners. [ … ] The need to pay business rates will reduce the amount that businesses are willing to pay to rent a property. [ … ] In contrast, in the long run the owners of the property have little choice but to accept lower rent, as there is little else they can do with the property. [ … ] If business rates weren’t there, the total cost of premises wouldn’t be much lower.152

147.However, we also heard that rents do not react to rates in a symmetrical way. Kate Nicholls, Chief Executive of UKHospitality, told us:

There is a working assumption among MHCLG officials that if rateable values go up and rates go up, rents will come down. That bit is broken. [ … ] I have had that come back to me as a, “If rates have gone up that significantly rents will undoubtedly come down because of that”. That is broken in our system for hospitality.153

Selected methodology

148.The Country Land and Business Association, a membership organisation of land, property and business owners, wrote to us stating that using the contractor’s basis resulted in the VOA using something akin to an income and expenditure basis which they saw as being “far less transparent for a ratepayer” and that “none of these [contractor basis] valuation methods are based on the actual performance of the business occupying the premises but of a hypothetical business occupying that property. Real business performance could be very different, and some valuation assumptions may not be appropriate in an individual case.”154

149.The Company Chemist Association, a trade association for large pharmacy operators in England, Scotland and Wales, raised concerns about the VOA using inconsistent valuation methodologies to value pharmacies. In its submission it wrote that for some pharmacies, who are co-located with a General Practice, their valuation has moved from per square foot to a “rate per patient”. This meant that “the more patients the doctors have on their list, the more the pharmacies pay, whether those patients use the pharmacy services or not”. Furthermore, for other co-located pharmacies, the VOA was using “goodwill” to value the premises and stated “there is no clear valuation methodology required by the VOA” for these pharmacies.155

150.For the pub industry, Fair Maintainable Trade (FMT) is used as the basis for the valuation which means the rateable value is based on what ‘trade’ could be achieved in that premise by a reasonably efficient operator. We received representations from across the pub industry156 that the valuation adjustment for a reasonably efficient operator is not being made. The British Beer and Pub Association, a brewers and pub membership organisation, summed the situation up by stating:

In reality, the default position continues to be based on the latest annual accounts of actual turnover. Therefore, when a high-achieving operator takes an average pub and transforms this they are often heavily, and unfairly, penalised in terms of a large increase in business rates.157

151.The hospitality industry also raised concerns around the concept of a reasonably efficient operator. UKHospitality, a hospitality trade association, told us that:

Hospitality is not an ‘efficient’ user of property. The experience of offering hospitality is such that people require space and a relaxing environment. Many businesses also cannot use their properties throughout the day, or even throughout the year, and therefore the property lays idle. Businesses have adapted and innovated to minimise these downtimes but they are a fact of life for many businesses. A tax based solely on property is therefore always going to disadvantage hospitality.158

152.The energy sector questioned whether its valuation methodology was appropriate. The Energy and Utilities Alliance, a not-for-profit trade association in the energy sector, expressed the view that using the contractor’s basis for valuation was “not appropriate for industrial activities”, while being “hard to understand and forecast for investors”:

The contractors’ basis has been traditionally used by the VOA to assess gas storage assets [ … ] There are no or very limited benchmarks in this sector and companies have struggled with the contractors’ basis for years. Given there has been no new investment decisions since the financial crisis and that all companies have recognised in their financial statements significant drops in the value of their assets, it is complicated for them to understand how their assets are evaluated by the VOA and it is making it hard to contest the valuation and to forecast what companies would pay in the future [ … ] The receipts and expenditures method provides a better tool to evaluate companies but is showing its limits when, as is the case with storage operators, the profitability is nil or below zero.159

153.We raised the variances in valuation methodology being used and the potential for the existing valuation methodologies to become outdated with the VOA, who said in response that its “role is in the valuing of the property, not the overall business rates system”.160

154.Valuations do not always appear to use the most appropriate methodology or reflect changing business models. Businesses must be able to adapt to compete in the modern economy and good tax policy should be fair and coherent. The VOA must ensure that it is open-minded and prepared to revisit the traditional way that it values businesses to ensure that they take account of real-life modern business experience. We recommend that internal guidelines are reviewed to ensure staff take a flexible and responsive approach to valuation.

Comparability of valuations

155.Businesses told us of disparities between the way in which the VOA values similar businesses. The Petrol Retailers Association & Car Wash Association, a membership organisation of independent fuel retailers and the self-regulating industry body for car washes, raised concerns that forecourt shops and convenience shops received different valuation methodologies:

There is the major discrepancy between the fact that business rates are levied according to turnover for shops on petrol forecourts whereas rates for convenience stores are assessed by square feet. This means a convenience store can end up paying less than a similar shop on a petrol forecourt while having a far higher turnover. With margins on fuel significantly lower than non-fuel items, forecourts are having to broaden their offer to focus more on the shops on their sites, bringing them into direct competition with convenience stores and this disparity ensures a completely uneven playing field between the two.161

156.Flexible workspace provider Enterprise Nation told us that the VOA valued serviced offices and flexible offices on a different basis and argued that they should be valued using the same method.162

157.The Clubhouse, a flexible workspace provider, expanded on Enterprise Nation’s concerns, when they told us that flexible workspace providers face further disadvantage because the individual operators within the workspace were not eligible for Small Business Rates Relief (SBRR) because “the operator does not have exclusive control” so there is “a single rating assessment” for the entire work space, and therefore, no entitlement.163

158.It appears that the system permits significant discrepancies to exist in the valuations of seemingly similar businesses. We recommend that in its review of internal guidelines the VOA looks at how those discrepancies arise and whether there is scope to improve valuation methodologies so they lead to more consistent outcomes.

Appropriateness of valuations

159.We received numerous written submissions from businesses expressing concerns about the basis of their valuations, and in particular, how difficult it was to persuade the VOA to change its valuation when a clear over valuation had occurred. Barney Bears Nursery told us its rateable value was calculated at £42,000 when in fact their rent was £25,000 and that in order for the VOA to adjust their rateable value they needed their landlord to write to the VOA. They felt that the “VOA officers should do sites visits and base rates on facts” rather than assumptions.164

160.The Rating Surveyors’ Association told us that decisions were being made on a case by case assessment, rather than based on the wider picture. They wrote that:

A holistic approach is required rather than by case by case clearance. Challenges are not judged against a known code but have regard to other assessments. When changes were proposed to the appeal system for the 2017 revaluation, the intentions in the terms of reference were widely considered to be constructive. The indications were that trust, transparency and openness would be integral. The problem is that the system that has been delivered does not work in such a way. It feels [to businesses] that the deck is stacked against them, and that perceived injustices are not dealt with fairly.165

161.Paul Crossman, a multiple pub operator in York, told us that the VOA had transferred the onus of proving the appropriateness of valuation onto business. He said that:

When I argued that we were overtrading [ … ] and that the new [rateable value] was out of all proportion with all local comparable [pubs], I was asked via email to “Please forward to me any information concerning the operation of these two pubs to support your contention that the pubs are overtrading [ … ] The response from the VOA [ … ] clearly reveals that in fact [Fair Maintainable Trade] is not actually assessed as part of the valuation process. Instead there is a clear expectation that publicans will need to go through the appeal process in order to get a more accurate and fair valuation.166

162.Business rates need to be fair to all ratepayers, and where unfairness is perceived, action needs to be taken to address the concern. At present, there is a significant level of distrust of the VOA’s valuation techniques in some business sectors. When a ratepayer questions a valuation, VOA staff should explain clearly how their valuation complies with their own guidance, particularly when they have used the contractor’s valuation method. The VOA must also take appropriate action to put things right quickly when presented with evidence that their valuation is incorrect.

42 Organisations include: The Bath Pub Company Ltd (IBR0117), Blake Penfold (IBR0027) CBI (IBR0100), Energy and Utilities Alliance (IBR0029), Gerald Eve LLP (IBR0013), R3Intelligence/ Northumbria University (IBR0103), Storengy UK (IBR0016), and Unibail-Rodamco-Westfield (IBR0085).

43 Royal Institution of Chartered Surveyors (IBR0075)

44, ‘Business rates relief’, accessed 8 July 2019.

45 Revo (IBR0096)

46 Virgin Media Limited (IBR0113)

47 Virgin Media Limited (IBR0113)

48 The Company Chemists’ Association Ltd (IBR0083)

49 UK Music (IBR0041)

50 Institute of Revenues, Rating and Valuation (IBR0109)

51 Learn Tuition Centre Limited (IBR0006)

52 The Clubhouse London Limited (IBR0063)

54 Valuation Tribunal Service, ‘Billing authorities’, accessed 29 July 2019

55 Local Government Association, ‘Who we are and what we do’, accessed 29 July 2019

56 National Federation of Retail Newsagents (IBR0026)

57 British Retail Consortium (IBR0057)

58 The National Trust (IBR0048)

59 Local Government Association (IBR0136)

60 Treasury Committee (IBR0135)

61 CBI (IBR0100)

62, ‘Business rates relief: Transitional relief’, accessed 9 July 2019

63, ‘Written statement to Parliament: Business rates’, accessed 23 August 2019

64 River Island Clothing Company Ltd ( For and on behalf of the Retailers Rates Action Group) (IBR0032)

65 Blake Penfold (IBR0027)

66 CBRE Limited (IBR0076)

69 Department for Business, Energy & Industrial Strategy, ‘The UK’s draft integrated national energy and climate plan (NECP’, accessed 30 July 2019

70 Vtesse Harlow Limited (IBR0082)

71 Virgin Media Limited (IBR0113)

72 Organisations include: Energy and Utilities Alliance (IBR0029);Federation of Small Businesses (IBR0042); Institute of Directors (IBR0040); Love Wimbledon BID Ltd (IBR0037); and The National Trust (IBR0048); British Beer and Pub Association (IBR0028)

73 British Beer and Pub Association (IBR0028)

74 Woodhaven Trust (IBR0043)

75 Energy and Utilities Alliance (IBR0029)

76 Valuation Tribunal Service, Jargon Buster accessed 17 October 2019

77 Mygov.Scot, ‘Business rates relief: business growth accelerator’, accessed 12 August 2019

78 Organisations that include: Accessible Retail (IBR0038); Association of Convenience Stores (IBR0064); British Retail Consortium (IBR0057); British Beer and Pub Association (IBR0028); Camden Town Unlimited (IBR0070); CBI (IBR0100); CBRE Limited (IBR0076); and Historic Houses (IBR0060); Unibail-Rodamco-Westfield (IBR0085).

79 Unibail-Rodamco-Westfield (IBR0085)

84, ‘The Rating Manual, accessed 30 August 2019’

85, ‘Rating Manual section 6: valuation practice’, accessed 13 August 2019

86 CBI (IBR0100)

87 Groupe PSA (IBR0078)

88 Make UK (IBR0128)

89 CBI (IBR0100)

90 Groupe PSA (IBR0078)

91 Make UK (IBR0128)

101, Local Government Finance Act 1988, accessed 10 October 2019

106 National Hairdressers Federation (IBR0012)

109 Jolly Jumpers Play Zone (IBR0015)

110 Newcastle City Council (IBR0110)

111 Altus Group (IBR0094)

112 Accessible Retail (IBR0038)

113 Other organisations who raised transparency concerns include: British BIDs (IBR0093); British Chambers of Commerce (IBR0099), CBI (IBR0100), North Norfolk District Council (IBR0089), Pubs Advisory Service Ltd (IBR0107), Revo (IBR0096), Walgreens Boots Alliance (IBR0120) and Virgin Media Limited (IBR0113)

114 British Property Federation (IBR0088)

119 Revo (IBR0096)

123, ‘Budget 2016’, accessed 16 July 2019

124, ‘Autumn statement 2016’, accessed 16 July 2019

125, ‘Spring budget 2017’, accessed 16 July 2019

128 Gerald Eve LLP (IBR0013)

129, ‘Authorising your agent’, accessed 17 July 2019

132 Gerald Eve LLP (IBR0013)

135 BIDs: Business Improvement Districts are geographical areas where local business have voted to pay an additional mandatory levy. This levy is used to provide additional, or improved services, in the local area which businesses have identified as being required.

136 British BIDs (IBR0093)

137 GL Hearn Limited (IBR0062)

141 API - Application Programme Interface

143 John Lewis Partnership (IBR0145)

144, ‘Overview of Making Tax Digital’, accessed 12 August 2019

145 Institute of Directors (IBR0040)

146 ICAEW (IBR0080)

147 River Island Clothing Company Ltd ( For and on behalf of the Retailers Rates Action Group) (IBR0032)

148 GL Hearn Limited (IBR0062)

150 Storengy UK (IBR0016) and the Energy and Utilities Alliance (IBR0029)

151, ‘Rating Manual Section 4 Part 3: valuation methods’, accessed 1 August 2019

152 Institute for Fiscal Studies (IBR0115)

154 Country Land and Business Association Ltd (CLA) (IBR0010)

155 The Company Chemists’ Association Ltd (IBR0083)

156 Those who have raised concerns around Fair Maintainable Trade valuations include: Barrels Public House Hereford (IBR0036); Brighton & Hove Licensees Association (IBR0119); British Institute of Innkeeping (IBR0056); Mr Paul Crossman (IBR0049); McCartan’s Ltd (IBR0065); Pubs Advisory Service Ltd (IBR0107); and Save UK Pubs (IBR0118).

157 British Beer and Pub Association (IBR0028)

158 UKHospitality (IBR0077)

159 Energy and Utilities Alliance (IBR0029)

161 Petrol Retailers Association & Car Wash Association (IBR0116)

162 Enterprise Nation (IBR0098)

163 The Clubhouse London Limited (IBR0063)

164 Barney Bears Nursery’s Ltd (IBR0003)

165 Rating Surveyors Association (IBR0047)

166 Mr Paul Crossman (IBR0049)

31 October 2019