In what has been billed as the biggest change in a generation, the process of the 2017 business rates revaluation is well under way. Richard Farr considers what schools need to know – and how they are likely to be impacted.
What are business rates?
Business rates are a tax payable on non-domestic buildings, including all schools, set by the government and collected by the relevant local council. similar to council tax for domestic properties, business rates serve as a contribution towards local services.
In England and Wales, business rates are calculated according to a property’s ‘rateable value’. For schools that were built for educational purposes, this is usually set in reference to the cost of building a new facility at the time of the last valuation date (currently 1st April 2008). Where a school has been converted from another use, for example an office building as is common in the London boroughs, the rateable value represents the market annual rental value at the time of the last valuation date.
This figure is then multiplied by the annual business rates multiplier, which is set by the government, to give the total amount payable before any deductions.
All schools have rateable values and must pay business rates as a result, but most are eligible for reliefs through charitable status.
What changes are under way?
On 1st April 2017, new rateable values for properties around the country will be implemented. This has triggered a lengthy process, including a number of key dates throughout 2016 and 2017 that schools must be aware of.
Draft rateable values were published online by the Valuation Office Agency (VOA) on 30th September, which help organisations to understand their new valuation, whilst providing an opportunity for them to tell the VOA about any errors before the new rates are applied from April. For the first time, this information has only been made available online via the VOA website, and they won’t be sending out printed valuations.
How will it impact schools?
Most schools are likely to experience a change in their business rates as a result of the business rates revaluation. This is because the valuation date is set two years before the last revaluation and since there has not been a revaluation since 1st April 2010, local authorities in England and Wales are still basing their business rates bills on 2008 figures. This will change next year, as all non-domestic properties in England and Wales will be reassessed based on a valuation date of 1st April 2015.
Working with schools in different regions has shown us some interesting variations. In the London boroughs, for example, many schools have seen an increase to their rateable value because the rental value of their property has increased considerably since 2008.
Outside of the M25, where it is usually more common to have purpose-built schools (rather than converted buildings), many schools will have noticed a more modest increase in rateable values. Our own research shows building costs rose by around ten per cent between 2008 and 2015, due in part to the cost of materials such as steel and concrete, and this has been reflected.
Schools that have extended or refurbished their facilities since that time, or changed the use of a building, are also likely to have found that their rateable value has changed.
What happens next?
Although the draft rateable values have now been published, schools will not be able to calculate their new business rates until the government announces the multiplier in January. New rates bills will be issued on 1st March 2017 and the revaluation comes into effect from 1st April.
What schools can do immediately, however, is have their draft rateable values assessed, to analyse whether they are entitled to a reduction in business rates.
Discounts could relate to the age and obsolescence of the facility, temporary classrooms or outdoor leisure facilities. We believe there should be bigger discounts, for example, to reflect the fact that temporary classrooms have an increasingly short life expectancy and their obsolescence should be taken into account – especially if the government wants to encourage and promote the development of energy-efficient school facilities.
Richard Farr is a partner at national property consultant Sanderson Weatherall