Publicans: Brace Yourselves for Business Rate Rises…. But What can be Done to Help?

“Fair Maintainable Trade” (FMT) is defined as “the annual level of trade (excluding VAT) that can be achieved by “a reasonably efficient operator of the business”. Trade levels assume the property is properly run at all times, is in a reasonable state of repair and that trade levels are sustainable over a reasonable period of time.

Unfortunately, this bears no relation to the actual performance of a business, and looks at turnover in isolation – regardless of how much is spent on maintaining your pub through a recession, including money you might have spent on refurbishments, promotions or smoking shelters.

The VOA collected information on actual rents and turnovers. Most of the data was collated before the smoking ban in 2007 which decreased pub turnovers dramatically. This might explain why the average pub’s ratable value has increased by 23 percent. There is a range of percentage options derived from analysis of pub rents supplied by the British Beer and Pub Association, an association representing landlords’ pub companies, not tenants. Its support of the recent controversial OFT decision that tied leases are “fair” reflects this.

Various adjustments are made to this range of percentage options, including the exclusion of the value of living accommodation. The actual percentage adopted will vary according to the location and type of business. Ratable values will, in most cases, be less than the passing rent.

One important thing to remember, however, is that your ratable value is not your actual rates bill. In fact, it is likely that the multiplier used to calculate the level of business rates bills will reduce by 16 percent from around 48.5p/£1 to 41.7p/£1 in England.

For example, larger pubs with a ratable value of £18,500, or £25,500 in London, which face a substantial increase in ratable values, would have to pay 12.5 percent extra, plus RPI. Since this year’s RPI is –1.4 percent, rises will be capped at 11.1 percent.

Transitional relief will allow licensees to spread the cost of business rates rises, with increases staggered over the remaining four years. These set limits on the percentage by which your rates bill can change each year.

Therefore, actual bills will not rise by the same proportion as ratable values. However, some are still concerned that transitional rates and lower multipliers will not adequately compensate for the large rises in ratable values.

Many publicans do not understand how their ratable value can have doubled or trebled when the pub trade has declined significantly.

The figures used reflect the VOA’s estimate of trade as of 1 April 2008. If you think your rates bill is going to be too high, it is worth checking if you have previously returned a completed form to the VOA to provide them with details of your trade levels.

If you still think that there is a discrepancy, you can provide details to the VOA of your turnover from all sources (alcohol, food, gaming and so on), excluding VAT, for the financial years 2005/6, 2006/7 and 2007/8. If there have been significant changes to the property or locality, this may be a ground for reducing your rates bill. Beware however, as the VOA will check your valuation and this may result in an even higher ratable value.

Seek advice from a specialist solicitor or rating expert, before you even speak to the VOA.

What if your ratable value is higher than other pubs in your area? Does this make a good ground for an appeal?

Although your assessment might be high, it may be that other assessments are low due to the VOA having relied on incomplete or inadequate information, or changes such as improvements to other properties not having been picked up. The sky is the limit when it comes to ratable values, so any information you now give to the VOA can result in a further increase. If, however, you can show that your turnover has declined to an extent that the fair maintainable trade figures held by the VOA are too high, this is a valid ground for appeal.

The VOA encourages publicans to contact them if they think their ratable values are wrong. Caution must be applied, however, and it might surprise people to learn that an appeal or even a mere discussion with the VOA may lead to an increase in your ratable value.

An abridged version of this article appears in the 23rd November 2009 issue of the Publican Magazine.

For any advice on information on licensing matters, please contact Maria Guida on +44 (0)20 7749 2700or meg@silvermansherliker.co.uk.