Many licensees are about to receive a financial heart attack. If they haven't received one yet, then over the next few days they'll get a letter notifying them of the new rateable value (RV) of their pubs.
The new valuations come into force on 1 April and will have a major impact on the financial health of a pub. The rateable value is used not only to determine the business rate that a pub will have to pay, but also the cost of a premises licence and subscription rate to Sky Sports.
The Valuation Office Agency (VOA), the Government body that sets the rateable values, is under no obligation to give prior warning about any impending changes, although licensees in the know could have discovered their new RV by visiting the VOA's website.
For others, there's likely to be a shock. VOA says the national average increase across all businesses is in the order of 17% to 18%, with London businesses taking the brunt at 22%.
Double talk clouds the issue
Confusingly, the Office of the Deputy Prime Minister has chosen to highlight regional variations by claiming "60% of businesses could see a fall in their relative rateable values and their rates bills.
"Furthermore, tax rates for businesses will be reduced to compensate for rises in rateable value with additional rates relief for small businesses (England only) and a transitional relief scheme for those facing increases already in place."
This double talk has only compounded what is already a complex issue involving intricate legal and accountancy procedures. David Turnbull, who runs the Blue Boar at Sprowston in Norwich, has been drawn into the fray after finding to his "horror" that the pub's RV had rocketed from £51,250 to £82,500 an increase of more than 60%.
Turnbull says he had not received any direct notification from the local valuation office about the proposed RV and only learned of the increase after receiving "about 20 flyers from various companies" offering an appeals service. These companies had used the VOA's website and subsequently targeted pubs that were about to receive a hefty increase in their RV.
Profitability has fallen
Turnbull explains: "We are hardly new to the premises having completed 26 years here and, if anything, although turnover has remained level, profitability has fallen."
After discussing the matter with a local valuation officer, the Blue Boar was re-rated at £65,000 an increase of 27%. Turnbull says the new valuation "is still too high, so I guess I will have to go through the appeals procedure". He adds: "The daft thing is there's a thriving car dealership next door turning over millions per annum and its proposed RV is £37,500."
Turnbull has also received a thumping increase from £20,000 to £65,000 for another of his three pubs that he turned "from a toilet, four years ago" into Tommy T's, a US-style restaurant bar in Norwich. "We are being penalised for our success in over-trading the pubs."
Turnbull and his business partners have recently acquired the freehold of a former Mitchells & Butlers pub that trades over four floors in two buildings in a prime trading area near Norwich Cathedral. It will open shortly as the Lawyer, but there the rateable value is just £6,500. "It just shows what a great nonsense there is over rateable values," he says.
Don't keep heads in the sand
Michael Yass, head of rating at licensed property specialist Fleurets, says he expects 50% to 60% of licensees will be appealing against the RV imposed on their pubs.
Despite this, he comments: "It frightens me that a large number of licensees only pay lip service to their rateable value. Their rates liability is such a large overhead of their business and they are not taking it as seriously as they should." Yass says an increase in RV could push the cost of a premises licence into a higher banding.
At present, there is no clear mechanism whereby licensees could receive refunds of their premises licence fees, if they successfully appeal and have their RV reduced.
Equally unsettling is the fact that the Government is considering altering the appeals procedure, which may limit the number of times that someone can object to a rating and also the grounds for appeal.
For its part, Sky is not planning an increase in subscription rates until its annual review, which takes place when the new football season starts in August. It would, however, be a major break from tradition if Sky did not increase subscriptions in line with the new rateable values.