Blog: Devil in the detail of business rate cap

Gary Louttit
Gary Louttit

By Gary Louttit, head of hospitality and leisure at Shepherd Chartered Surveyors

 

Finance Minister at Holyrood, Derek Mackay recently announced: a 12.5 per cent cap on rates bill increases for hotels, pubs, restaurants, cafes and other accommodation as well as many premises with offices in the Aberdeen area together with relief for renewables companies, including hydro, though the detail of how this will work in practice has yet to be revealed.

This move acknowledges that these sectors have been unfairly treated at this Revaluation and the problems of hoteliers and publicans being unable to pay the additional levels asked of them had to be addressed.

Mr Mackay spoke about the benefits the cap would bring to those facing crippling increases in their Rateable Values as a result of the Revaluation of commercial premises taking effect on the 1st April this year, but there could be a sting in the tail.

Whilst the cap announcement provides welcome news for those faced with rocketing Rateable Values, what might have been overlooked in the announcement of the cap of 12.5 per cent is that it will only benefit ratepayers in the hospitality sector and some office occupiers in Aberdeen for one year. In years two through to five of the life of this Revaluation, these ratepayers will face the original increases in rates payable, almost certainly exacerbated by an increased Uniform Business Rate.

Rateable Value is an assessment of the annual rent of premises on the open market at the tone date. For this rating revaluation, the tone date is 1st April 2015, the previous tone date having been 1st April 2008, which was prior to the economic downturn and many businesses have therefore been paying rates since then based on rateable values with no regard to the downturn in rental values, the economy and, in turn, business levels.

The Rateable Values of offices in Aberdeen are therefore likely to have reduced significantly since the tone date, following the marked decline in local economic activity as a direct consequence of a significant reduction in the price of oil and gas leading to widespread downsizing in economic sectors related to that industry.

Similarly, the Rateable Value of hospitality sector operators are likely to have reduced significantly since the tone date when the sector was at its peak as a consequence of Scotland having played host to such international sporting events as the Commonwealth Games and the Ryder Cup boosting business significantly, though temporarily.

As such, the Finance Minister’s latest announcement on rates has served to highlight the need for reform of the rating system. Indeed, the Government has established The Barclay Review Group to make recommendations that seek to enhance and reform the business rates system in Scotland to better support business growth and long term investment and reflect changing marketplaces.

These recommendations are due in July.

In the meantime, we would strongly advise that ratepayers in the hospitality sector and office occupiers in Aberdeen take advice on their new Rateable Values from local experts in the field and press on with appeals against the new assessments on the basis that they will still face increases in year one, albeit not as high as expected, but that in years two to five they will face the full impact of these contentious increases if they do not.

With the detail behind the business rates cap yet to be relieved, now more than ever, businesses would be advised to contact their local rating advisor for advice on the local impact of rating legislation.

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