I have been paying £16,000 pa approx. in BRs since 1983 at the Tynemouth Lodge, which is a small one room lock-up pub serving drinks only.
I have always cynically regarded Business Rates as just a tax on jobs.
The fact that the government has currently abolished Business Rates until April 2021, because of the virus, is a disguised admission that BRs are financially toxic to businesses small and large.
So how do Business Rates impact on public houses?
It is a system of crude taxation based on the annual level of trade (excl. VAT) that a pub is expected to achieve if operated in an efficient way.
The Valuation Office Agency (VOA), an off-shoot of the Inland Revenue, uses mathematical formulae to quickly calculate the Rateable Value of a pub which is based on ‘fair maintainable trade’. The figure is supposed to take into consideration such factors as: the type of pub; the area it is in; the various services it offers (e.g. food, sports screening).
Having reached a figure for Rateable Value, the actual rates payable are calculated by multiplying this figure by the correct ‘multiplier’ – a figure set by central government.
This is currently about 50p in the pound, so a pub with a RV of £35,000 will pay half of this in Business Rates p.a.
The VOA works closely with just one drinks trade body, the British Beer & Pub Association, membership of which is restricted to brewers and property companies that own chains of pubs, so zero representation there for the many thousands of privately owned free houses which have an entirely different business model from that of brewery or ‘pubco’ owned pubs.
Unfortunately, there is no effective trade body that free house owners like myself can join to represent them in appealing Business Rateable Values and having used a few agents to submit appeals I finished up appealing myself, as all of them achieved zilch.
The old Licensed Victuallers Association, which shut down in 1992, was tied up with the Big Six Brewers of yesteryear and represented their tenants and managers.
The British Institute of Innkeepers, of which I used to be the regional secretary, was also impotent when it came to rates appeals.
In one instance, spanning a couple of years, I employed the services of a specialist Chartered Surveyor, who formerly worked for the VOA, and who assured me that my Rateable Value was ‘ridiculously high’, but he also failed to achieve a result.
To illustrate how useless the appeal process is, a director of Harrods of Knightsbridge on the BBC Today program recently explained that even if they win an appeal to get a Rates reduction, nothing happens for 5 years.
Business Rates are adjusted, usually every 5 years, to reflect changes in the property market, the most recent revaluation came into effect on 1 April 2017, based on rateable values from 1 April 2015 (work that one out).
At revaluation, all properties are given a new rateable value and the multiplier is also revised.
Bearing in mind that about 25% of pubs have closed since 2000, it is clearly a difficult and rapidly declining market to trade in, and yet the Rateable Value of pubs are set extremely high compared to most other commercial premises. I put this down to VOA being cosy with the BBPA and their Pubco members, many of whom charge absurdly high rents to their tied tenants, who in turn seem to be an expendable commodity as they can always find someone else to sign a lease.
It was the Big Six brewers with their tens of thousands of tenants who used to liaise with the VOA in the old days before the Beer Orders legislation forced them to sell most of their pubs, most of which were sold to property companies – the aforementioned dreaded ‘Pubcos’.
In my opinion, Business Rates are outdated and now is a golden opportunity to abolish them during the current one-year Rates-free period.
A fair way of making up the deficit from lost Business Rates is possibly to increase the rate of VAT from 20% to 25% for all online non-food purchases, which would be like a breath of fresh air for our floundering high street retailers and the tenants and indeed landlords of shopping malls.
The VOA would then be defunct, with a big savings. Local councils would be able to levy Council Tax on the owners of all B&B/holiday/Airbnb type properties, many of whom are currently avoiding both Council Tax and Business Rates, courtesy of getting 100% Rates relief if their RV is under £12,000 – a tax loophole enjoyed by the owners of hundreds of thousands of such properties.
At the top end of the hospitality sector, hotels (which employs a large workforce) would no longer pay Business Rates, making them much more sustainable and pubs would likewise be relieved of the millstone of paying rates.