Appealing pub business rates

In February this year, the Association of Licensed Multiple Retailers (ALMR) – now UKHospitality after merging with the British Hospitality Association – issued a warning that the “real hit” of business rates would come around the turn of the financial year. 

As per the Government’s website, business rates for pubs in England and Wales are calculated by the Valuation Office Agency (VOA) working out a site’s rateable value – its open market rental value on 1 April 2015, based on an estimate by the VOA establishing the venue’s ‘fair maintainable trade’.

This can be influenced by the type of operation being run, the area it’s in and the service it offers – including food, gaming and live sport screenings.

Altus Group vice-president David Shuttle-worth sees these estimates as an “art, not a science” meaning that there’s plenty of scope for operators to contest rateable value.

“There’s no defined science to it, which is why you’re left with such a good option to potentially challenge that opinion because it’s an opinion that’s setting a very high tax level.”

However, what options does an operator have when they feel the VOA’s estimate is off key? 

Check. Challenge. Appeal

As part of the reformed business rates system, the Department for Communities & Local Gov-ernment introduced a new three-stage system – Check. Challenge. Appeal.

Shuttleworth summarises: “In the initial stage – the check – the valuation office checks the facts of the property and they will want to know what the trading figures are for three years either side of that valuation date. 

“They’ll ask ‘what are the wet, dry and other trading receipts?’ broken down by year.

“Then, once you’ve gone through the ‘check’ stage, it will go through to the ‘challenge’ stage where you have to provide all your evidence as to why you believe the valuation is too high.

“If the valuation office agrees with you, it will issue a notice. Then you either accept what it says or you go to the final ‘appeal’ stage. 

“You have to pay a fee at that point and you have to then go to a valuation tribunal to have the appeal determined. If you’re successful, you get your fee back.”

“It’s quite a complicated set-up.”

Pubs v restaurants

According to Shuttleworth, the difference between a pub and a restaurant to a rating valuer is “rather ambiguous”. 

“Most of us would like to think that we can recognise a restaurant when we see it, but the pub market is evolving and the difference between a gastropub and a restaurant is often difficult to establish.

“It’s certainly not about the quality of the food or the dining experience. Many food-led pubs more than hold their own against restaurants in that respect.”

However, the key difference is that while a licensed property would have its rates calculated by fair maintainable trade, the valuation for a restaurant tends to be determined on a rate per square metre based on rents.

It’s been argued that this puts food-led pubs at a disadvantage, and that their rates should be calculated in a similar fashion to restaurants. While such pubs can seek re-classification, Shuttleworth suggests those who do so must tread carefully.

“We advise extreme caution before any pub pursues a restaurant classification in order to amend their basis of valuation and tackle its current business rates bill. 

“There are many variables at play, including the level and type of trade, location of the business and the physical characteristics of the property. You would need a clear understanding of all the facts and evidence to back up your case before pursuing any change. 

“Don’t forget that many pubs currently benefit from a rates relief discount, so switching to a restaurant could also mean losing that discount.”

Location is key when weighing up the option of changing a venue’s method of business rate calculation.

“There are areas where, if you can convince the valuation office to value it on a rate per metre, it may be better to do so, but you need to get your evidence in place to start with – you need your ducks in a row before you do anything.”

Looking at comparables

Comparable evidence provides a sound basis for a solid business-rates appeal, according to Shuttleworth, but requires a lot of leg work.

“There’s no information online. You’d have to do your own research. I suppose speaking to competitors, other people in the industry, seeking advice as to how to proceed. 

“You’re on your own as a ratepayer – particularly with specialist properties such as public houses. The valuation office does not provide information or evidence, and will not consider a revision until you’ve done the leg work. 

“You do need to get evidence together before you start. Particularly in England, the system is onerous and the worst-case scenario is the valuation office will look at your trading figures and not accept your argument and may even increase the assessment. But that doesn’t happen that often. 

“Carry out your due diligence, be very careful, but you need to do all that back work and then speak to the valuation office. Get your basis of value and appeal where appropriate.”

Temporary reductions

Shuttleworth adds that there are a number of factors beyond a pub’s control that can have an adverse impact on business – meaning an operator can appeal for a temporary reduction in business rates. 

“These are physical factors that would materially affect the trade of the property – if your trade has been affected by a new pub opening nearby or a competitor who’s had an extension or changed their set-up and how they trade,” he explains. 

“Parking restrictions, road changes – things in the locality that have affected the number of people coming through your door. 

“If you can identify a change in the physical nature of the area then you can appeal for reductions on that. If you can show your trade is being affected by something nearby, that’s a good argument.”