Business rates 25th June 2015

The business rates appeals process is ‘facing meltdown’ and risks starting the new revaluation period in 2017 with a massive overhang of unresolved cases, following today’s announcement by the Valuation Office Agency (VOA) that 272,360 appeals were outstanding as at 31 March 2015.

The backlog has surged to such a high level following the government’s unexpected introduction of a 31 March 2015 deadline for backdated appeals. The figures reveal some 194,720 new appeals were lodged during Q1 in response to the deadline being imposed.

Gerald Eve said the number of outstanding appeals now dwarfs the 168,000 recorded in September 2014, a figure that prompted the Chancellor to announce that 95% would be cleared by the end of June 2015.

It added: "This influenced a total change in attitude at the VOA, the result of which that appeals for which the Agency had previously defended its valuations to the hilt, suddenly were capable of being settled with reduced assessments.

"In a sign of the turmoil facing the VOA, it had been due to publish details of outstanding cases on 28 May, but deferred the announcement to 25th June, claiming it had 'been unable to capture sufficient data on its IT systems'.

"George Osborne will be under pressure to set a new clearance target in his post-election Budget next month. However, with some of the most complex cases still to be dealt with and VOA resources being diverted to prepare for the 2017 revaluation, progress with unresolved cases is actually slowing: the VOA processed 145,000 appeals during 2014/15, but has been tasked with resolving only 90,000 claims during the current year."

A combination of the high backlog and a slowing in the number of claims being processed has in addition raised the prospect of the next revaluation cycle beginning in April 2017 with a huge number of cases – some dating back as far as 2010 – still outstanding.

Jerry Schurder, head of business rates at Gerald Eve, said: “It’s clear the appeals system is in crisis and facing meltdown. The VOA has found itself in the impossible position of being asked by the Government to drastically reduce the number of outstanding cases, while at the same time facing a surge in new appeals and having to reallocate scarce resources to prepare for the impending revaluation.

“It is ratepayers who will ultimately suffer the most, facing lengthy delays not only in having current appeals resolved but also any appeals against the 2017 revaluation assessments. The worry is that the Government will use the current level of outstanding cases to introduce punitive measures in an effort to discourage appeals.

"With the Government currently undertaking a review of the structure of business rates, for which representations were required by 12 June, there are fears that it will present the number of appeals as proof that ratepayers can’t be trusted, using this as a justification for introducing measures making it more difficult and costly to appeal against rates assessments. Indeed, the recent Queen’s Speech included provision for a new Enterprise Bill, which is to include clauses ‘modernising the appeals system’."

Schurder continued: “The introduction of such measures would not only penalise those that can least afford them – smaller firms who don’t have the wherewithal to effectively prepare such appeals – but would also represent a misdiagnosis and mistreatment of the problem. It is not the actions of the ratepayers that clog up the system, but the structure of the system itself that needs to be changed.

“If the Government is serious about addressing the issues, it needs to move towards a business rates system that is more flexible, more reflective of prevailing economic conditions and removes the smallest properties from their liabilities entirely. The smallest two thirds of properties – some 1.1 million assessments – contribute just over 6% of the total rates take and should be removed from the system altogether. In addition, the VOA also needs to be more transparent, justifying its rates valuations to businesses so that they do not need to appeal in order to force the assessing body to reveal the data it used.

“Combined with far more frequent revaluations, which would greatly reduce the incentive to make appeals, such an approach would massively reduce the VOA’s workload while having a nominal impact on revenues. The Government should be looking to use the carrot of genuine reform rather than the stick of punitive measures if it wishes to create a business rates system that works for all stakeholders.”