Ratepayers: check, challenge, appeal system

16 February 2017

Is the “Check, Challenge, Appeal” system for ratepayers any better than what it replaces, asks Rob Gurney-Smith?

---

The draft amendments to the snappily named Non-Domestic Rating (Alteration of Lists and Appeals) (England) Regulations 2009 were published on 16 August 2016, with an 8-week consultation closing on 11 October.

The changes proposed by the Department for Communities and Local Government (DCLG) are designed to usher in the “Check, Challenge, Appeal” (CCA) system, so taxpayers are confident that their liability to the business rate is correct and relevant.

The government is of the opinion that: “There is widespread agreement that the current system is broken and in need of reform … too many appeals remain held up for too long, creating costs and uncertainty for businesses and for local authorities”, and that there are “a large number of speculative appeals which clog up the system”.

The then Communities Secretary Greg Clark went further when he was quoted in the Local Government Lawyer of 12 July 2016 as saying: “For too long we’ve had an appeals system where backlogged cases – often caused by unscrupulous agents eyeing up a fast buck – meant unnecessary costs and uncertainty for all involved.”

The appeal stage is designed to enable unresolved cases to go to an independent valuation tribunal for a £300 fee, though this is refundable if the case succeeds. If the appeal is settled by agreement before a hearing, then only £100 of this is refundable. A penalty of £500 may also be imposed if false information is provided “carelessly, recklessly or knowingly”.

The new system has three stages. First, the ratepayer formally checks the details of their assessment with the valuation officer (VO). This is important, as the “Check” stage is the start of the process and sets what is called the “material day” by which the assessment is to be considered. This in turn affects the date from which any amendment to the assessment may be effective.

Once the check has been concluded then a very detailed proposal – the “Challenge” – may be made to the VO, setting out precisely the information and evidence in support of the alteration.

Assuming the challenge concludes without the resolution desired by the ratepayer, the ratepayer may appeal to the Valuation Tribunal for England (at the time of writing the scheme only applies to England). From there, an appeal to the Upper Tribunal and potentially the upper courts may be made.

The regulations confirm that the first 2 stages of the process could take 30 months.

Goals

Is the system really “broken” as the DCLG claims, though? Business rates have been in operation since 1990 and rating, including domestic property, for somewhat longer.

Business rates are a tax that relate to a hypothetical rental valuation for a non-domestic unit of property, and are very hard to avoid. They are relatively straightforward to collect, and indeed local authorities have been doing so at an average rate of more than 97% – putting HMRC’s endeavours to collect other forms of tax to shame.

A successful tax must relate to the ability to pay. Business rates achieve this through regular revaluations based on economic levels of value, fixed at a specific point in time prior to each revaluation.

Physical changes to the property may be reflected throughout the revaluation period, but not economic changes. It is therefore essential to have the property revalued on a regular basis so as to keep the tax relevant.

A successful tax must relate to the ability to pay

Until 1966, rates were a tax on occupation. From 1966, however, local authorities were given the ability to charge the rate on unoccupied properties. In 2008, the government enabled rates on empty properties to be charged at 100%. This move created difficulties for owners of redundant buildings that were unable to let them as the recession progressed.

The delay in revaluation and the introduction of the 100% rate for unoccupied properties have caused taxpayers to lose faith in the system because it no longer reflects the ability to pay. Both measures were policy decisions capable of easy remedy.

The final criterion of note for a successful tax is for the taxpayer to be able to question and, if necessary, challenge their liability. So how is this ability “broken”? And if “too many appeals remain held up for too long”, why is this?

Appeal hold-ups

The Valuation Office Agency (VOA) is under-resourced. Many years of cutbacks and savings have had a cumulative impact on this professional organisation, as have its loss of autonomy and the requirements to meet targets.

Ratepayers also want to question not only the physical criteria used for their valuation but the evidence on which the valuation is based. The VOA will not disclose such information before a proposal is made.

Ratepayers often need to make speculative proposals to protect their position as regards the tax. Certain errors can only be backdated if there are appropriate proposals on which to hang those errors.

Proposals take time to resolve – on average about 2 years, though in some cases a lot longer. Changes to reflect high vacancy rates or the impact of new developments on older ones take time, because both sides have to gather and examine the evidence.

It has long been claimed that something has to be done about unscrupulous practitioners who make a great many proposals without any regard to their ability to prosecute claims on taxpayers’ behalf. Though the activities of such firms have vastly declined in recent years, it is neither possible nor appropriate to police or legislate against these ambulance chasers.

It should be for the taxpayer to decide whether or not someone is appropriate to instruct. The professional organisations support this decision-making with the information provided on their websites and the regulation of their members.

That said, George Osborne in his final budget eased the situation by declaring that 600,000 small hereditaments will receive 100% relief from business rates. In one fell swoop, he has reduced the burden on all parts of the system. Those 600,000 ratepayers will have very little interest in appealing their rateable values.

Helping ratepayers?

One of the stated aims of the CCA regime is to establish a system that is easier to use by the smaller ratepayer, the VOA having accepted that it is not particularly user-friendly for larger ratepayers. I find this aim somewhat hard to explain, however, following the removal of liability from 600,000 smaller ratepayers.

The government appears suspicious of the profession making speculative appeals to protect their clients’ liability to the tax and only charging a fee when the taxpayer is saved any money.

RICS members owe a duty as expert witnesses to the tribunals and courts. They cannot simply misrepresent their way through proceedings without risking disciplinary action on all counts.

Those same practitioners charge no fee for the proposals they make on a client’s behalf confirming that the taxpayer’s liability is correct. It hardly appears the taxpayer is being done a disservice by the profession.

The government’s proposed changes to the right to challenge the tax go further by requiring that no alteration to the rateable value is made where, in the opinion of the lay Valuation Tribunal, the existing valuation falls within “the bounds of reasonable professional judgement”.

What the definition of these “bounds” is and what constitutes “reasonable” both remain unclear, but such a proposition could see a great many ratepayers paying substantially more in tax than the primary legislation would require them to.

There is another aspect, not covered in the new regulations, that is glaringly absent from the business rates system. Liability to the tax is not only based on the entry in the rating list but also on the local authority’s calculation of and charging the tax. Unlike council tax, there is no route to appeal the way in which business rates liability is calculated or demanded. The taxpayer would have to withhold payment and then face a summons, or potentially start judicial review proceedings.

In my opinion, the CCA system does not achieve any of its goals in a better way than the outgoing regime. It introduces more steps to achieve the same outcome and adds little to the ease with which the taxpayer can access the system. Indeed, it arguably takes away the taxpayer’s right to challenge their liability.

And one final blow? While the VO is not permitted to share with the taxpayer the evidence on which their valuations are made, they are permitted to give this evidence to various other parties, including the local authority.

While the local authority may only use that information for business rates purposes, how confident will taxpayers feel that the same data will not find its way into the evidence used by that authority in negotiating leases, in its role as either landlord or tenant?

Rob Gurney-Smith MRICS is Director, Bilfinger GVA.

Further information

• Related competencies include Valuation.
• This feature is taken from the RICS Property journal (December 2016/January 2017).