Business Rates Calculation Update

Posted: 4th July 2018

Legislative changes to reverse the Mazars effect
Background
In Woolway v Mazars [2015] UKSC 53 the Supreme Court held that non-contiguous floors occupied in the same building by the same business should be treated as two separate properties for non-domestic rating purposes even where immediately above or below another floor occupied by the same entity unless linked by a private staircase or lift.

The Supreme Court’s decision led to a major change in the Valuation Office Agency’s (VOA) procedure for assessing the business rates treatment of separate properties in the same building. The change led to a number of possible scenarios where business rates payers could end up paying more because what had previously been treated as a single property for business rates purposes was now valued as two or more properties. This is in particular the case where multiple floors in a building are occupied by the same company but where access is over the common parts.

2017 Autumn Budget Announcement
In the Autumn 2017 Budget (announced prior to the decision of the Supreme Court) the government announced its intention to reverse the effect of Mazars by introducing retrospective legislation to restore the practice of the Valuation Office. Affected businesses will be able to ask the VOA to recalculate valuations so that their bills will be based on previous practice backdated to April 2010. This will also address those businesses that lost Small Business Rate Relief as a result of the judgment.

Non-Domestic Rating (Property in Common Occupation) Bill
We now have details of the proposed changes in the form of a consultation paper published by the Department of Communities and Local Government and the draft legislation to enable the change being the Non-Domestic Rating (Property in Common Occupation) Bill (the Bill).

The Bill will provide that where two hereditaments are occupied by the same entity and are contiguous they shall be treated as a single property. The definition of “contiguity” relies upon the sharing of a common wall or ceiling. To achieve this, all or some part of the wall or ceiling of one property will also need to form all or part of the wall or ceiling of the other property. The definition is quite a convoluted one and may result in some things that would not previously have been a single property becoming such. Properties that are used for wholly different purposes will not be able to benefit from this treatment, nor will unoccupied properties.

The implementation of this change will involve secondary legislation as well at the implementation of the Bill. The proposed secondary legislation will allow rate payers to seek backdated changes to the 2010 Rating List where they have been affected by changes resulting from the Mazars decision. The consultation paper proposes that this should be done by giving ratepayers a new right to make proposals to alter the 2010 Rating list – something that they have generally not been able to do since the list ended on 31 March 2017. The VOA would then be required to make equivalent changes to the 2017 Rating List so as to ensure consistency going forward.

The consultation stage closed on 23 February 2018 with the Bill having been considered and passed by the House of Commons without amendment in May. The Bill is now at the Reporting Stage at the House of Lords with the third reading to take place shortly thereafter.

The principle of the proposed changes is welcomed by many rate payers who have seen substantial retrospective increases in rates liability through no fault or action of their own, but simply as a result of a change in the interpretation of the law. Whether the detailed implementation will play out in the way the Government suggests is now the key question and we will continue to monitor the progress of the Bill over the coming months.