Reform to business rates

The-Non-Domestic Rating Bill introduces significant reforms to the business rate system. The proposed reforms, devised to modernise and renovate rate revaluations, include:

• Revaluations every three years, with the next revaluation taking place in 2026
• A new legal duty to notify the Valuations Office Agency (VOA) of changes affecting rate assessments and associated sanctions
• Clarification of circumstances constituting a material change of circumstance
• Removal of the check stage from the check, challenge appeal process
• A twelve-month period of relief from higher rates resulting from qualifying improvements to commercial properties

New legal duty on ratepayers

Under the Bill, commercial occupiers will have a legal duty to supply the VOA with information of any changes that affect the assessment of the property for business rates each time circumstances change.  Ratepayers will also have to complete annual self-declarations, stating that they have made any relevant notifications and their information remains up to date.

The duty will apply to:

1. the person in rateable occupation of a commercial property to be assessed for business rates
2. or, the person entitled to possession if the property is unoccupied, irrespective of whether the property has yet been entered on to a rating list

Where occupation is partly domestic and partly non-domestic, the duty will apply to the whole property. Properties exempt from business rates will be excluded from the duty while they are wholly exempt.  

Ratepayers will have to supply the VOA with the information of any changes to the following:

Information about the property

• For occupied properties: any changes to details about the ratepayer, what property they have occupied and how it is being used
• For unoccupied properties: any changes to details about the property, its intended use and how it's expected to be occupied

Information about the tenancy and use of the property

• Any changes to relevant information about the lease(s), licence(s) or other agreements concerning the use of the property (similar to the VOA’s current Forms of Return)

Trade and accounts information (where relevant to the valuation)

• This obligation will not apply to most ratepayers occupying shops, offices and factories. It may apply, for example, to utility networks, pubs and petrol filling stations.

Costs information (where relevant to the valuation)

• Where forms of return are used, the deadline for responding will be reduced to 30 calendar days.

For rental information, the requirement to provide information will be triggered when a formal agreement (or amended agreement) becomes legally binding. In the case of an informal agreement, it'll be the date the rent (or any subsequent amended rent) is payable.

For receipts information, information should reflect a business’ financial year and be supplied within 30 calendar days of 31 March.

For changes to occupation or property characteristics, the requirement to provide information will be triggered by events such as new occupation, a change in use, or physical alteration to the property.

Where an obligation has been triggered, ratepayers will be required to provide their information in a 30 calendar day window.

For the annual confirmation, ratepayers will need to confirm within 30 calendar days of 31 March each year that they have complied with the duty and that the details held by the VOA remain accurate. Where there have been no changes, ratepayers will need to check the information and tick boxes.

Online services and compliance regime

The Government intends to provide an online service for ratepayers to confirm the properties for which they are responsible for business rates purposes, and to review and edit the factual property and valuation information as necessary. It's assumed that this will include online reminders of upcoming notifiable events, such as a rent review.

From 2026, the Government will introduce a sanctions regime to ensure ratepayers comply with their new legal duty. Ratepayers may be liable for a penalty for each instance where they fail to notify the VOA of relevant information. The penalty level, and the number of penalties, will be dependent on the type of information that isn't provided. There will also be penalties for knowingly or recklessly providing information that is false and, if relied upon, may lead to an inaccuracy in a list.

Ratepayers will have the opportunity to request a review of penalty decisions, based on a set of mitigating criteria (based on HMRC’s approach to reasonable excuse) within 30 calendar days of the issuing of a penalty notice, before moving to the appeal stage.

The VOA will have discretion to remit in full any penalty imposed for failure to comply or provision of false information, whether or not an appeal has been lodged or a tribunal judgement made.

Ratepayers will only be able to access challenge if they are up to date with their obligations under the duty (including annual confirmation). This is consistent with existing requirements on ratepayers to have completed a check before they can proceed to make a challenge against a valuation.

Transparency and reform to appeals

The Government shall implement a 2-phase process to provide ratepayers with greater transparency on their valuations:

• Phase 1: ratepayers will be able to access improved guidance covering rating principles and class-specific valuation approach (anticipated for the 2023 lists)
• Phase 2: ratepayers will be able to access fuller analysis of rental evidence used to set an RV for a specific property, an explanation of how the evidence has been used to arrive at the RV and further guidance (anticipated for the 2026 lists).

The Government also announced reforms to the appeals process and clarifications to the scope for ‘material change of circumstances’ (“MCC”) claims between revaluations for the determination of rateable values. From the start of the 2023 lists, it's proposed that the following matters won't constitute an MCC:

• changes to legislation
• changes in licensing regimes
• advice or guidance issued by a public authority concerning how a property should be used

Ratepayers will still be able to make an MCC challenge on the basis of the following matters even where they have been caused by a change in legislation, licensing or guidance:

• a physical change to the property or in the locality
• the property joining or leaving the categories ‘domestic’ or ‘exempt’
• the property forming or no longer being a unit of property for business rates

Additionally, from the outset of the 2026 list the check stage shall be removed from the check, challenge, appeal (“CCA”) process, and the window for the challenge stage shall be reduced to 3 months. This reform reflects that the check stage shall in effect be replaced by the requirements to update the VOA with property information under the new duty.

Improvement relief

To support investments in commercial properties used by active business, a new improvement relief shall be introduced in 2023 and subject to review in 2028. Upon ratepayers satisfying certain eligibility criteria, they shall receive relief from higher business rates for a twelve-month period.

Ratepayers will need to demonstrate that:

1. the improvements are ‘qualifying works’
2. that they have remained in occupation of property since the qualifying works began

‘Qualifying works’ are:

• improvements which produce an increase to the size of an existing building or the internal useable space within a commercial property to be assessed for business rates
• other improvements or upgrades to the property’s physical state, which might include addition of heating, air conditioning, or raised flooring
• or the addition of other rateable plant and machinery

The works must result in a positive change in the rateable value to be eligible for relief. 

The following won't constitute qualifying works:

• a change of use alone
• the addition of land to an existing property
• the construction of a new commercial property outside of the existing property resulting in a new rating assessment
• repair works, such as replacing old technology

Any improvements which result in no overall change in rateable value or a reduction (due to simultaneous value-supressing activity, such as demolition works) won't be eligible for the relief. The relief is not intended to subsidise general commercial property development, such as new construction or refurbishment.

Once the VOA is satisfied that the qualifying works condition has been met, it'll issue a certificate of the increase in rateable value attributable to any works falling within the meaning of qualifying works.  The certificate will have daily effect for a twelve-month period. Separate qualifying works on the same property in the same year may result in separate certification.  

The VOA will be able to withdraw or amend a certificate at its discretion. Ratepayers will be able to challenge list alterations made by valuation officers to reflect qualifying and other works through the existing appeals process if necessary.

Ratepayers will also need to demonstrate they have occupied the property in the period since the qualifying works began in order to qualify for relief. The ratepayer must not have changed during this period. 

The relief is aimed at ratepayers investing in their own active businesses. Where landlords make improvements to their asset, the occupier of the property will be eligible for the improvement relief as the ratepayer likely to face higher overall rental/commercial costs resulting from the improvements.

Once the occupation condition is met, the billing authority will apply the relief.