”The Court of Appeal has done more with this verdict on business rates than the government did in the Budget for supporting retailers.”
This is the view of John Webber, head of business rates at Colliers International, on last Friday’s decision by the Court of Appeal that retailers shouldn’t be liable for business rates on cash machines located outside their shops.
The verdict is the culmination of a five-year legal battle between the Valuation Office Agency and some of the UK’s biggest retailers including Tesco and Sainsbury’s. It overturned a previous ruling of the Upper Tribunal in January 2017 that stated ATMs located outside shops should be assessed for business rates but those inside should be exempt.
So how significant is the ruling and, taken with the reforms announced in the Budget last month, will it make much of difference to the outlook for the UK’s struggling retailers?
For large retailers with lots of ATMs outside their stores, the ruling is undoubtedly significant from a financial point of view because they will now be entitled to backdated refunds. Colliers estimates that the refunds to the supermarkets in the case alone should be in the region of £496m. Each ATM site would have attracted an average rates liability of around £4,000.
Furthermore, the verdict allays fears that the VOA would look to go further still.
“There was a real fear that if the VOA had been successful, this would have opened up the floodgates to assess up to 400,000 vending operations, which would have been calamitous for both retailers and those operators,” says Webber. “Hopefully, this puts the VOA zealots back in the box and they get on with dealing with the outstanding appeals instead of cooking the golden goose named retail.”
The VOA must now drop its crusade to seek out more things to assess for business rates
Jerry Schurder, head of business rates at Gerald Eve, agrees, calling the verdict a “victory for common sense”.
“The VOA readily admitted in the Court of Appeal that, if successful, its approach would have led to the likes of kiddie rides and coffee and soft-drink machines each receiving their own rates bills,” he says. “The VOA must now drop its crusade to seek out more things to assess for business rates.”
Schurder adds that the “unfair nature of the business rates system” was at least partly to blame for the problems facing UK retailers.
Read more from Jerry Schurder - Budget measures fall well short of the real reforms businesses need
However, the government has taken some steps to help alleviate the rates burden.
Having used the Spring Statement to pledge that the frequency of business rates valuations would change from five to three years and bring forward the next valuation to 2021, chancellor Philip Hammond went a step further at the end of last month in his final Budget before Brexit with moves to actually cut rates.
Hammond introduced a one-third cut in business rates for small retailers that will take effect for two years from April 2019 until the next revaluation in 2021.
The move has been met with a mixed response from the sector.
Allan Lockhart, chief executive of NewRiver REIT, welcomes the decision. “As the role of the town centre evolves, these sorts of businesses [small retailers] continue to be a vital part of the DNA of town centres, providing a place for local communities to socialise, eat or drink or a convenient place from which to pick up everyday essentials,” he says.
Priced out of the high street
However, Owain Roberts, senior associate at Gensler, questions whether the move is going to be enough to make a long-term impact.
“Many of the businesses that this will be of direct assistance to are already priced out of the core high street by both high rents and high business rates,” he explains. ”The headline-grabbing closures that are now blighting all our established high streets are affecting the premises, which are already far in excess of the £51,000 rateable value threshold announced in the Budget.
“Coupled with the fact that the business rate relief is only temporary, this means that it is unlikely to be enough to encourage what was a ‘nation of shopkeepers’ to return to the high street.”
As well as being of little help to large retailers, the chancellor’s plans do little to help very small retailers, experts say.
Independent businesses with a rateable value of less than £12,000 already receive 100% relief, and those with a value between £12,001 and £15,000 receive a tapering discount from 100% to 0%. Analysis by CBRE suggests that those businesses with a rateable value of up to £13,980 will see no benefit from the reforms.
As such, Tim Attridge, CBRE’s head of rating, is unconvinced that Hammond’s proposal will help the high street. He concludes that it “doesn’t take into account those businesses with multiple sites and those businesses looking to grow and expand into larger premises”.
As for large retailers, Webber says that the chancellor’s measures leave them “at the mercy of escalating business rates” and that failure to address this issue will just mean “the carnage of retail closures will continue”. He adds: “It beggars belief that while businesses are set to face a £600m business rates bill rise in 2019, the chancellor thinks it’s enough to purely offer a giveaway to businesses that in most cases already receive small-business relief and to do nothing to help the big retail employers.”
A reduction in the rates levy for small firms will clearly be welcome
Helen Rainsford, Aviva Investors
An analysis by Colliers of significant retailers or restaurant chains – those with more than 10 sites – shows that more than 30 have announced company voluntary arrangements (CVAs) since the 2017 business rates revaluation.
Helen Rainsford, senior director at Aviva Investors, agrees with Webber that the government must go further to help large retailers: “A reduction in the rates levy for small firms will clearly be welcome and may alleviate some pressure on the smaller businesses. However, unless there is a widespread restructuring of rates it is highly unlikely to have a significant positive impact on retailers’ expansion plans, and thus will not have a demonstrable beneficial impact.”
For now, the only real positive for large retailers is the verdict in the Court of Appeal case and there is a slim chance that even that could be challenged.
The court ruled that the VOA should not be allowed to appeal to the Supreme Court. However, it still has a 28-day window from the day of the verdict to apply to the Supreme Court to obtain the right to appeal on the Court of Appeal’s verdict – a move that many in the sector fear the VOA will make. For its part, the VOA has made no firm commitment, stating after last week’s verdict that it is considering its position.
So as with many legal battles, the case may be won but it is not yet quite over. Those large retailers hoping for a rates-refund cash windfall will have to wait a while longer to enjoy the fruits of their courtroom victory.