The recent Woolway v Mazars Supreme Court decision has thrown a spanner in the works for business rates on office buildings where the Valuation Office Agency (VOA) has applied a quantum allowance on substantial accommodation occupied over several floors in a building.
The allowance is generally subject to the size and specification of areas occupied. For example, within the City of London, allowances start from 70,000 sq ft for grade-A office space, 50,000 sq ft for grade-B office space and 21,000 sq ft for basic or poor accommodation.
However, the recent decision, which contradicts previous case law and the VOA’s current policy, may now mean businesses that occupy consecutive floors within a building could pay business rates on a floor-by-floor basis. This means they will lose any size allowance reflected in existing rating assessments.
The VOA is currently considering the implications of this decision and will no doubt update its rating manual in due course. Those in multi-let properties occupying several floors are likely to be hit hard. Cluttons alone has a large number of clients occupying multi-let buildings, particularly in the City and the West End. These businesses that recently took pre-lets on a number of floors may now need to find extra cash under the sofa for the government.
For example, one of our clients recently took 200,000 sq ft in the City at £56.50/sq ft on a 25-year lease on 10 floors, each of which have recently been entered into the rating list as separate assessments. As a single rating assessment, we would expect a quantum allowance of circa 12.5% on the total rateable value of £8.6m. This will create an additional liability of £950,000 up to 31 March 2017. Furthermore, if the VOA decides to separately assess the floors relating to their existing offices in the City, we estimate this will result in an additional liability of £2.4m.
If the VOA chooses to take the Supreme Court’s decision into account and backdate rateable values to 1 April 2010, then we estimate that in the City alone this will cost business more than £720m ignoring transitional relief.
Most would agree that business rates are one of the most unfair taxation systems the British economy endures. Businesses occupying substantial accommodation up and down the country would welcome a VOA decision that is in line with the status quo, following the previously agreed valuation approach, which in the past has been tried and tested.
Peter Chapman is head of rating and compensation at Cluttons
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