Dealing with increased rates bills

The hotel and licensed leisure sectors are due to see significant increases in rates bills from next April. Rating director David Jones considers the extent of the uplifts and actions that can be taken to reduce the burden.

THE PROBLEM

I am a central London three-star hotel operator. Over the past year my operating profit has been severely hit through falling occupancy and lower achieved prices per room. Notwithstanding the economic downturn, I understand my rates bills will increase significantly next year. Why is this occurring, and is there anything I can do to reduce this overhead?

THE LAW

All commercial properties in England, Scotland and Wales have been revalued by the Valuation Office Agency (VOA) of HM Revenue & Customs. This revises the basis for calculating rates for the next five years from 1 April 2010. To ensure consistency, the national date of valuation is fixed at 1 April 2008. A snapshot of the market at April 2008 is taken and a market rent (rateable value) determined for each commercial property.

With limited comparable rental evidence for hotels and other licensed properties, the receipts and expenditure method of valuation is applied. Using actual accounts, the VOA seeks to determine the appropriate level of rent the hotel would attract based on 2007-08 trading performance.

Hotels have generally experienced very strong performance over the five years to April 2008. As a consequence, the new revaluation will have a real effect on future rate bills. Central London hotels, in particular, see their assessments increase for three-star-plus by an average of 50%, with some increases as high as 100%. Hotels in the regions have experienced average increases in excess of 25-35%. Some well-located central city and airport sites have been hit by a near doubling in values.

The effect on rates bills during these difficult trading conditions will be painful. Increases will in part be restricted from a 15% fall in the uniform business rate (rates bill multiplier) and a proposed scheme restricting rates bill increases in 2010-11 to a maximum 12.5%. However, London occupiers with rateable values of more than £50,000 will have to pay an extra 6-8% supplement to fund cross rail. The result is that the majority of hoteliers outside London will, from April, face a 12.5% increase in their bills, and those in London an 18-19% increase, with further increases year-on-year ahead of inflation.

EXPERT ADVICE

It is important that all hotel businesses are aware of the problem and reflect increases in their budgets. Action should be taken, where merited, to seek to reduce both the current 2005 and new 2010 rating list values.

CHECK LIST

Hotel operators should bear the following issues in mind:

• What level of liability am I budgeting for 2010-11. Is it enough?
• Is my existing 2005 list assessment as low as possible? A successful appeal could not only secure historic savings but reduce the basis for calculating the phasing adjustment into the 2010 rating list (possibility for five to eight years of savings).
• The 2010 list was published in draft on 1 October (www.voa.gov.uk). You will also receive a letter confirming your new assessment in the next two weeks. In instances where values appear excessive, representation to the VOA can now be made. They are prepared to prior agree values before the new bills are issued next April.
• Don't forget that appeals can be lodged over the five years of the 2010 rating list (more restrictive appeal procedures are likely to again be applied in Scotland). As well as general appeals, values can be reduced on grounds such as an increase in competition. Savings can be significant.

BEWARE!

Values can go up as well as down. Ensure you have taken professional advice from a chartered surveyor practising as a rating expert before taking any appeal action. Most rating surveyors will undertake the work based on a fee as a percentage of the actual savings they achieve.

CONTACT

David TM Jones, rating director, GVA Grimley
Tel: 020 7911 2389
E-mail:david.jones@gvagrimley.co.uk