Whilst the likes of shops, offices and factories are generally valued on the traditional floor area multiplied by rental rate, for rating purposes, licensed premises are effectively valued on a turnover basis with a percentage multiplier applied to arrive at the Rateable Value (RV).
When the 2017 revaluation values were issued, a significant number of large RV increases were reported by restauranteurs, publicans, hoteliers and nightclub owners. Many, as we do, felt they were are victims of a flawed and draconian rates assessment system which saw some rates bill soar by up to 400%.
Some also felt the Assessor's current method of calculating rates based on turnover rather than profit is “not fit for purpose” leading to unfair bills which have often been arrived at through hypothetical valuations. Unlike most other property types which are valued by floor area, hospitality premises are penalised with higher rates if they improve their business and increase turnover.
Despite the value increases, large increases in rates payments were mitigated to an extent by the Scottish Government introducing a Transitional Relief (TR) scheme where rates increases were capped at 12.5% (plus inflation) per annum on the previous year. In our previous article, we advised that in their budget published last month the government have extended this TR scheme until 2022 which is welcome.
However, this doesn’t alleviate the issue if the actual Rateable Value is too high in the first place and not in line with market conditions which is the reason there is a revaluation process. The TR is applied to the value agreed for the 2010 Revaluation which was based on market levels in 2008! The hospitality industry has clearly changed drastically since that time.
Also, if you are looking to take over a business now, then you will not be able to claim TR and this therefore potentially impacts on the marketability of the property.
A recent success we achieved for a hospitality sector client was The Himalaya Restaurant in Glasgow where we obtained a Rateable Value reduction of 25%.
Through extensive negotiation with the Glasgow Assessor’s office and our in depth knowledge of the local licensed premises and restaurant market, we were able to demonstrate and prove that the RV (which the rates bill is based on) should be reduced from £35,500 to £26,300 as part of the 1 April 2017 rates revaluation process.
This saved the client over £4,000 a year in rates payments and more than £21,000 over five years. Not only will this minimise outgoings and improve cashflow, it will also have a positive impact on bottom line value of the business.
If you are concerned with any aspect of business rates, please get in touch via contact our team at businessratesadvice.com