Business rates in England

The multiplier is set by central government, and is uniform. Power to set the multiplier in Wales has been devolved to the National Assembly for Wales. A special case exists where a defined special authority can set its own multiplier within centrally defined limits.[24] The only currently qualifying authority is the City of London.[25] The multiplier is increased annually, in April. The increase is capped at the same proportion as the increase in the Retail Prices Index for the month of September the preceding year. When re-valuations take place, the multiplier is adjusted so that the overall change across the country is the same as the Retail Prices Index change.[26][27]

The introduction of Small Business Rate Relief in 2005 added a supplement to the UBR to fund the relief.[28] The income from business rates currently does not go directly to the local authority (unlike Council Tax); rather, it is pooled centrally and redistributed to the authorities.[29][30] In 2014-15 authorities in England collected a total of £22.9 billion in business rates, representing 3.53% of the total UK tax income and achieving an average in-year collection rate of 98.1%.[4]

For 2016/17 the multiplier is 49.7 pence and the small business rate multiplier is 48.4 pence. The multiplier for 2017/18 is 47.9 pence,[31] which means that this tax has increased in real terms by 37.6% since its inception in 1990. The rateable values are updated to current market values, but the multiplier has increased from 34.8p (or 34.8%) to 47.9p (47.9%).

The bill may also be reduced by having one or more reliefs applied to it, such as reliefs for empty properties, or for charities. Reliefs are administered by the local authority and they do not affect the rateable value of a property. While some are mandatory, others are at the discretion of the local authority, who also have to bear, in whole or in part, the costs of some reliefs. In addition to specific reliefs, a hardship relief is available at the discretion of the local authority.[32] A relief on non-agricultural business on agricultural land or former agricultural buildings has been removed with effect from 14 August 2006.[33]

There are three types of relief to which a charity may be entitled: mandatory relief on occupied property, discretionary relief on occupied property and mandatory zero rating for unoccupied property. The relevant legislation is the Local Government Finance Act 1988.[12] The reliefs are not straightforward, and, in particular, the granting of the discretionary relief (which is by the local authority, or "billing authority") may vary from place to place.

In brief, the reliefs are a mandatory 80% relief on occupied properties, for which the charity must actively apply. An additional discretionary relief, of up to 20%, can also be applied for. The zero rating relief for unoccupied properties will apply where a property is unoccupied but will, when next occupied, be used wholly or mainly for charitable purposes (or those of a community amateur sports club).

Being a registered charity is conclusive proof of charitable status, but is not the only method to establish it. Simply being owned by a charity will not, however, be sufficient to qualify for the reliefs. The property must also be used wholly or mainly for charitable purposes, and the criteria set out in the Local Government Finance Act 1988 must also be met. The criteria for eligibility are not straightforward and there is some case law, especially in relation to charity shops, which provides guidance.

Certain non-profit making bodies may also apply for a similar, but discretionary, relief.[34][35] The criteria are given as follows:

To be eligible for consideration, the ratepayer must be a non-profit making body and the hereditament used for charitable, philanthropic or religious purposes, or concerned with education, social welfare, science, literature or the fine arts, or used wholly or mainly for recreation by a not-for-profit club or society.[34][35]

As of 1 April 2008, empty relief was altered, removing the previous total relief for industrial properties, and removing the 50% relief for other properties. The three-month period of total relief for non-industrial properties was retained, and a six-month period instituted for industrial properties. As before, some properties retained 100% empty relief; these included all properties below a certain rateable value (£2,200 from 2005), and listed buildings.[33][36][37] In the Pre Budget Report 2008, the Chancellor increased the rateable value for full relief to £15,000 for the period 1 April 2009 to 31 March 2010.

Where part of a property is to be empty for a short time, a discretionary form of empty relief exists for that empty part. The local authority can request an apportionment of the rateable value between empty and occupied parts from the Valuation Office Agency; the empty part can then receive relief in the normal way. This apportionment does not affect the rating list entry.[38][39]

To give relief to properties considered vital to rural communities, a combination of compulsory and discretionary reliefs exist in England.[40] The Welsh scheme was incorporated into small business rates relief from 1 April 2007.[41]

Properties of a given rateable value (£7,000 in England from 2005) can receive the relief if they are in a rural settlement (defined as a population of 3,000 or less, within designated rural areas), and are the only general store or post office, or food store in the settlement. The only public house or petrol station (with rateable values of up £10,500, as of 2005) in a settlement may also receive the relief, which is a mandatory 50%.

Discretionary relief of up to 100% is available for the previous properties, and for any others up to a current limit of £12000 rateable value, provided they are judged to be of benefit to the local community.[33]

Officially known as "Non-Domestic Rating (Small Business Rate Relief)" (SBRR) the latest order came into force on 2 March 2015 and extends the relief until the end of March 2016.[42]

In England, the rating list that came into force on 1 April 2005 featured a new relief designed to benefit small businesses. The Local Government Act 2003 introduced a small business relief,[28] initially set at 50% for properties with a rateable value of below £6,000, which is reduced by 1% for each £120 over £6,000 (effectively a sliding scale from 50% at £6,000 to 0% at £12,000), where the ratepayer has:

• one property, or
• one property plus additional properties, none of which may have a rateable value of more than £2,200, and the total rateable value of all properties is £15,000 (£21,500 in London).[33]

Where there are additional properties, only the main property will have the relief applied. The relief must be actively applied for by completion of a form available from each local council. A bill to make the application of the relief mandatory was not passed into legislation although it would have led to a greater take-up of this assistance.[43][44][45]

To fund the relief in England, a supplement is added to the Uniform Business Rate multiplier.[28] However, this supplement is only applied to properties with rateable values of £15,000 or higher (£21,500 in London), so properties between £12,000 and £18,000 receive neither the relief, nor the supplement[33]

In Wales, small business rates relief was not introduced until 2007.[41] It replaced rural property relief,[46] but included similar provisions, with 50% relief for most properties with a rateable value below £2,000, and 25% relief for rateable values between £2,000 and £5,000. Post offices with rateable values of up to £9,000 are eligible for 100% relief; while those over £9,000 and up to £12,000 receive 50%.[47] It also authorises local authorities to set up local schemes of relief for properties up to a limit of £12,000 rateable value.

On revaluation, the multiplier is adjusted so that the overall increase in liability across the country is in line with the Retail Prices Index, a measure of inflation. A property whose rateable value changes exactly in line with the national average would see an inflation-only rise in liability. Conversely, properties with unusually large changes in rateable value would have a significant change in liability. To smooth these jumps in liability, schemes of transitional relief have been applied to each rating list. These operate by restricting the proportion by which liability may change per year, both upwards and downwards.[48] The 1990 and 1995 transitional relief schemes required funding from the Treasury, while the 2000 list scheme was designed to be revenue-neutral over the lifetime of the list, albeit with Treasury funding at the beginning.[49] The Local Government Act 2003 required that all revaluations in England feature a revenue-neutral scheme, beginning with the 2005 rating list.[50] Transitional relief applies only to changes in liability between rating lists, not changes within lists. For example, under the 2005 transitional relief scheme in England, if a rateable value had risen by 20%, the rise in liability would be restricted to 12.5% in the first year, 17.5% in the second year, and the full 20% in the third year (different restrictions would apply for a small business).[51] Transitional relief schemes have been applied to the 1990,[52] 1995,[53] and 2000[54] rating lists in England and Wales, and to the 2005 rating list in England.[55]

The valuation assumes that a year-to-year (that is, ongoing) lease is being agreed, where the tenant pays all repairs and insurance, and that the property "is in a state of reasonable repair".[60][61] It appears that it was the intention of the drafters of the Local Government Finance Act 1988[12] that the previous assumption of @reasonable repair' would continue in the new system. However, a successful legal challenge at the Lands Tribunal (Benjamin (VO) v Anston Properties Ltd [1998][62]) showed that they had in fact failed to include it in the legislation. This was rectified by the Rating (Valuation) Act 1999,[63] which amended the 1988 Act to explicitly include the assumption. The repair assumption includes the proviso of "excluding from this assumption any repairs which a reasonable landlord would consider uneconomic." The property is assumed to be vacant and to let.[64]

The material day is the day on which matters affecting the physical state of the property are taken into account. The matters are those affecting the physical state or physical enjoyment, and the mode or category of occupation of the property. This can include the physical state of the locality, or matters which have a physical manifestation in the locality, and the use of other properties in the locality. For certain properties, including mines, quarries and landfill sites, the quantity of minerals, wastes, or other substances deposited on or remaining in the land are taken into account.[65][58]

When the list is compiled, the material day is the day the list is compiled (1 April 2005 for the 2005 valuation list).[58] If the list is further altered, the material day may be different for that alteration. For example, in the 2005 rating list the material day for an alteration to reflect an extension to a property will be the day the extension is completed.[66] Previously the material day for an extension had been the day on which the list was altered.[67] There are a number of different categories of events which cause the list to be altered (such as a new entry to the list, or the merger of properties), each of which has a specified material day. Most commonly the material day is the day the event occurred.[67]

The antecedent valuation date is the day from which all other matters (effectively those to do with economic conditions) are determined.[58] In the legislation it may be either the day of compilation, or a prior date set by the government. In practice, it has always been set at two years prior to the start of the list, so that for the 2005 rating list it is 1 April 2003.[64]

Rateable occupation is occupying a hereditament so as to be liable to pay a rate. In the case of LCC v Wilkins (VO) [1957],[72] the court brought together various prior cases to establish four essentials for rateable occupation:

• Actual occupation — requires physical occupation of the property, in the sense that some use is made of it or control exercised over it. It is treated as a matter of fact, so the legal title may not always be relevant.[73]
• Exclusive occupation – Also a matter of fact, although legal title will often play a part. The courts have laid down that where there are competing occupations, the facts must be considered to establish where paramount control lies.[74] For example, in Westminster City Council v Southern Railway Co & Others [1936], the court had to consider the level of control exercised by operators of various stalls and shops on a railway station, compared to that of the railway company.[75]
• Beneficial occupation – of some benefit to the occupier. It is not necessary to consider financial profit, as the test here is whether someone will pay rent for the property.[76] For example, in R v School Board for London (1886), the board operating a school could take no profit; the court held that this did not prevent beneficial occupation.[77]
• Not too transient – the occupation must not be for too short and fleeting a time. The courts have held back from giving a precise length of time, preferring to judge cases on their facts, including the intentions of the parties involved.[78]

The relationship between rateable occupation and the hereditament can be a complex one – taking rateable occupation of part of a hereditament creates a new hereditament out of the larger one, for example. In practice, determination of rateable occupation and hereditament is often interlinked.[79]

Three Brindleyplace, an office block in Birmingham. Although a single building, it has multiple occupiers. It therefore contains multiple hereditaments, each with a separate entry in the 2005 rating list.

In the leading case of Gilbert (Valuation Officer) v Hickinbottom & Sons Ltd [1956],[80] Lord Denning said:

The case therefore raises the important question: What is a separate hereditament for rating purposes? The statutes contain no definition, but the practice, which has prevailed for many years past, warrants the following general rules

Where two or more properties are within the same curtilage or contiguous to one another, and are in the same occupation, they are as a general rule to be treated for rating purposes as if they formed parts of a single hereditament. There are exceptional cases, however, where for some special reason they may be treated as two or more hereditaments.

Where the two properties are in the same occupation but are not within the same curtilage nor contiguous to one another, each of them must as a general rule be treated as a separate hereditament for rating purposes: and this is the case even though they are used by the occupier for the purposes of his one whole business.[80]

The principle Denning stated shows that if a business occupies a single property, that is the hereditament. If it occupies only the ground floor, that is the hereditament (and the first floor is a separate hereditament). If it occupies the neighbouring property as well, the two together are the hereditament.

Gilbert v Hickinbottom featured an exception to the general rule, where there were two properties in the same occupation, separated by a public highway. It was held that the functional connection between the two properties was so great that they were to be treated as a single hereditament. Functional connection is judged by the strength of the connection and the degree and nature of the separation. In Edwards (VO) v. BP Refinery [1974],[81] the analogy of a spark plug was used to illustrate the principle.[82]

A hereditament can include the right to exhibit advertisements on another's property (such as a commercial advertising hoarding), mines, and certain sporting rights.[83] Some items of plant and machinery within a hereditament[84][85] are assumed to be included in the hereditament.[58]

Certain properties which would otherwise be rateable are in fact exempt from rating (that is, are not entered in any rating list). These properties are specified by the Local Government Finance Act 1988,[86] and include the following:

• Agricultural land and buildings

Portland Bill Lighthouse, owned by Trinity House and therefore exempt from non-domestic rates

• Fish farms
• Places of public religious worship
• Lighthouses, buoys and beacons occupied by or belonging to Trinity House
• Sewers and accessories belonging to a sewer
• Certain property of drainage authorities
• Parks
• Property used for the disabled
• Air raid protection works, provided the hereditament is not used or occupied for any other purpose
• Swinging moorings
• Roads crossing over or under watercourses
• Hereditaments in enterprise zones
• Visiting forces premises

It is possible for only part of a property to be exempt, and the rest of it rated accordingly.[87]

Domestic property is defined in the Local Government Finance Act 1988 as "used wholly for the purposes of living accommodation", with provisos to exclude hotels and short stay accommodation and include moorings and caravans where appropriate. It states that unused domestic property is to be considered domestic if it appears that will be the next use.[88][89] Any hereditament that does not meet the criteria for domestic will be non-domestic[90] (although it may then be exempt).[86] It is possible for a hereditament to be both non-domestic and domestic in different parts, for example a shop with living accommodation. This is known as a composite hereditament, and the whole property is entered in the rating list, but the non-domestic valuation is based on the non-domestic part only.[91][92]