Rates are a fact of life, but there are steps you can take to ensure you aren't paying over the odds, writes David Germaney, national head of rating at chartered surveyors Fleurets.
Rates form the third highest outgoing that an operator has to provide for, after rent and staff costs. It is also one where there appears to be no direct tangible benefit to him.
In addition, the licensee also has to pay separately for rubbish collection, and for water supply and sewage disposal - hence the frequent cry of "what am I paying for?" Platitudes explaining that the rates go toward the costs of local authority services, education and the police are of little consolation.
Some 15 years ago, rates cost the licensee about two to two-and-a-half per cent of turnover, and at that level it was a comparatively small amount. Nowadays it could be anywhere between three-and-a-half to five-and-a-half per cent of turnover - hardly a mere inconvenience.
In very simple terms, the rateable value is the notional rental value of the business area of the property as if it were let on a full repairing and insuring lease and free of any tie. For the current rating list it is based on the levels prevailing at April 1 1998.
The rateable value is determined by the valuation officer, who works for an independent agency of the Inland Revenue. He is not employed by the local authority, and consequently has no axe to grind. His duty is only to fix a fair rateable value, and if your assessment should be halved, he will halve it. Equally, if it should be doubled, he will double it!
The council has no say whatsoever in the level of the rateable value - it is merely a collecting authority, and issues bills based on the rateable value.
The actual rateable value is based on the fair maintainable turnover as at April 1 1998. There is no statutory definition of fair maintainable trade, but it is taken to be the trade that could reasonably be expected to be carried on by a competent licensee, on the assumption that the property is maintained to a reasonable standard.
In the vast majority of cases the rateable value is based on the actual trade. There are times when the actual trade is patently far removed from that which is the fair maintainable level. For example, the current licensee has let the property become run down or he has gone to pieces because his wife has run off with the captain of the darts team. Obviously such trade as is carried on may well be below that which could reasonably be expected.
Equally, it might be the case that the property is run by a well-known footballer or actress and, as a result, most customers go there to rub shoulders with the "personality". Trade here is likely to be far above the norm.
Most licensees only seem to query their rate bill if it goes up compared to last year or if when chatting to Bill at the Fox and Goose, they find out that his rates are half theirs, but he is doing twice the trade. Unfortunately rates actually payable may bear no relevance to trade in a rival's pub - and licensees have also been known to brag to their rivals about how well trade is going.
The rates payable on a turnover of about £100,000 should be approximately £3,250. However, this is further complicated by the transitional arrangements (see below).
Rates appeals
If you are dissatisfied with your rateable value, you can appeal against it. To do so you do not go to the council, but contact the valuation officer - the phone number is in the telephone directory or can be obtained from the rates department of your council. He will send you a form to complete on which to make your appeal.
Alternatively, contact a specialist licensed property rating surveyor - he will be pleased to talk matters through with you and may well work on a success-related fee basis, so that if he cannot get you a reduction there is no cost to you.
You must be careful about making an appeal - if you are underassessed then the valuation officer will almost certainly increase your assessment.
"Cowboy" consultants
There are still numerous "cowboy" firms of rating consultants who telephone or cold-call, promising vast reductions and getting people to pay £200 to £600 up front, and then charge an additional success-related fee based on the reduction in rateable value.
Sometimes, because of the transitional arrangements, a reduction in rateable value will not save any money over the life of the rating list.
At Fleurets, we had a "cowboy" call at our offices, and he told me that the Government had instructed the valuation office to over-assess our offices by 20 per cent to make up for a shortfall in the Treasury funds - and that he could get this 20 per cent refunded to us, back-dated for five years. This is a typical sales pitch and a load of dishonest rubbish.
Other ploys used by such so-called consultants include:
- pretending the council has asked them to contact the licensee
- saying that they have already ascertained from the valuation officer that the property is over-assessed
- having walked round the ground floor, saying that the rates can come down because there is a large staircase and that the space it takes up should be reflected in the rateable value. Since a pub is virtually always assessed by reference to its trade, the floor area has very little to do with the level of rateable value.
These are only some of virtually fraudulent sales pitches that are used. Another typical ploy is for the cowboy to call and pretend that because of his special contacts he has been able to get the rateable values of all the pubs nearby. In fact, all rateable values are a matter of public record and can be obtained either from the council or the Valuation Office website on www.voa.gov.uk
Change in circumstances
Having made your appeal, it is likely that the process will take at least a year before the valuation officer can deal with it. There have been numerous appeals, and the situation has been exacerbated by the foot-and-mouth epidemic. That said, most valuation officers are reasonable, and if there are genuine hardship grounds they will bring matters forward for early discussion.
It is also possible to make an appeal if there has been a material change in circumstances which has adversely affected your trade. Examples include the opening of new or improved competition, demolition of nearby houses or factories, or a bypass taking trade away if you are on what was formerly a busy main road.
There are certain time limits to making appeals - in simple terms do so before the end of the rate year in which the change occurs.
Do remember that if you are a tied tenant then your brewery or pubco may well already have a retained adviser. Contact them to find out if that is the case.
Finally, don't sign up to someone who rings up or calls out of the blue - if the offer sounds too good to be true, it is!
Contact one of the firms of chartered surveyors who advertise in the trade press and seek their advice.
Transitional arrangements
- If you had a rate bill in the previous year of £1,000, it will not go straight up to £3,250 but will rise gradually. So, the following year the amount demanded would be about £1,100.
- The difference between the theoretical amount and the amount actually payable is known as transitional relief and is shown as such on the rate demand.
- This has to be paid for somehow and is met by those who are in downward phasing. If your rate bill last year was, say, £5,000 then, instead of coming down to £3,250 it would only come down to about £4,900 and the difference of £1,650 is known as the transitional premium.