Rates Shambles

Rates Shambles: Everyone is talking about the shambles that is Scotland’s rating evaluation. This story is set to run and run. Annabelle Love reports.

When Finance Minister Derek Mackay announced his 12.5% cap on business rates for licensed premises in February, it is fair to say that many in the hospitality sector heaved a sigh of relief that the threat of major hikes and potential ruin had been staved off – at least in the short term.

But fast-forward eight weeks and the picture looks rather different now that the new valuations have been sent out, and councils are due to start collecting payments.

Firstly, it turns out that licensees will have to apply for the cap themselves in order to comply with EU rules. Secondly, if they are expected to pay at the new valuation rate until the cap has been sanctioned and applied, it will effectively leave many businesses facing exactly the kind of uncertainty the relief was supposed to alleviate.

A Scottish Government spokesman explained recently, “The business rates cap announced for hotels, pubs restaurants and cafes sectors must be an application based scheme to comply with European Union State Aid rules and to ensure eligibility for the relief.”

The fact that this was not clear initially has come as a shock to many. Coupled with the fact that instructions on how to apply for the cap vary from writing a letter to having to fill out a form, it has only added to the anxiety felt by members of the hospitality and licensed trade sectors.

Ryan James, Chairman of Glasgow Restaurant Association and owner of the city’s iconic Two Fat Ladies, does not mince his words on the matter.

He said, “There is a total crisis coming. It would appear that the left hand really doesn’t have a clue what the right is doing.

“This nonsense of having to apply for the 12.5% cap is not what Derek Mackay said when he made his announcement. What will happen is that the wee guys who are running pubs and are too busy at the coal face to actually sit down and write the letters, are going to get absolutely hammered. The cap has just thrown a massive spanner in the works and the transition is going to be tortuous.

“The horrible thing about all of these mistakes is that they will never be in favour of the hospitality business, they will always be in favour of the coffers basically. This whole thing is a very cynical exercise.”

He added, “My concern is that the RAVs bear no relation to the figures I was given verbally, or the amounts quoted online. In my case, The Buttery has seen a rise of 159%, The City Restaurant has gone up 105% but what I am most upset and offended by is the fact that our original restaurant – Two Fat Ladies on Dumbarton Road – has seen a 400% increase from £4,480 to £19,800 – at a time when that area has actually dipped in sales by approximately 25%. That rise also takes it just over the Small Business Rates Relief threshold.

“Personally I am cancelling all of my Direct Debits and will only be re-instating them when I agree that the correct rating values for 2017/18 have been put in place. My advice to anyone is to look at what your previous rates were, add 12.5%, strike your Direct Debit and put a Standing Order in place, which means that money goes straight to the council each month but they can’t just take an amount. It’s an absolute shambles.”

Ryan also hit out at the lack of information given out to councils who will be collecting the new valuations, and urges all licensees to start work on their appeals immediately, to avoid missing the September 30 deadline.

He said, “The financial services teams for each council really have been given no direction on how to implement the cap – the advice online is to write a letter applying for it, but Glasgow City Council is telling people they will need to complete a form instead.

“In terms of your appeal, get that process started right now because there is going to be a massive queue, but also make sure that whoever you take on is not working on a fee basis, but on a percentage of what they save you, because otherwise it could end up being much more expensive.”

Gary Thomson, of FullerThomson, owns seven bars and restaurants with business partner Gordon Fuller. He was one of many shocked to learn that licensees will, unless new guidance is issued in the interim, still be expected to pay full rates until they have applied for, and been granted, the 12.5% cap – rather than bills being adjusted automatically.

He said, “The knock-on effect from a cash flow point of view is quite onerous and it’s all very well saying that you can pay out and then you can maybe get it back, but for some companies that is simply not an option.

“We are lucky in that we run quite high volume sites and have a fair bit of cash flow, but I’m sure there are hundreds of businesses who were probably terrified at what was about to happen, then thought they’d had a lucky break and are now about to discover they haven’t.

“I imagine most people will have assumed, as I did, that there would be some sort of cap on their bill, but that is not the case. If you’re a small business, working to earn your rates, and suddenly they’ve gone up by 40 or 50%, that’s just ridiculous. It is disappointing from a Scottish Government perspective.“

Prior to the Tone Date (April 1, 2015) the assessors sent out rental questionnaires and turnover details to all premises, but this time round they had a very poor return rate – thought to be around just 10%. This means that they only had a limited amount of data from what is actually happening in the market in respect of rental levels and turnover to work with – which could have a hugely significant bearing on the new valuations.

Moira Walker, Head of Rating at commercial property consultants Ryden, sees this as one of the key reasons why licensees should challenge the valuations – along with the ‘broad brush’ approach which was used by the assessors this time round.

She said, “The licensed and leisure industry seems to be taking the brunt of this present rating revaluation and there is every reason to appeal the rateable value, there’s every reason to challenge it because it doesn’t seem to bear any resemblance to what has actually happened in the market or the perceived value of the properties themselves. I really would urge everyone who has that type of premises to put in a rates appeal, and then the onus is on the assessor to justify the level of value they have applied.”

She added, “The way the assessor has addressed their method of valuing licensed premises this time round has been a very broad brush approach. They are applying 8.5% to all levels of turnover whereas before they would have categorised each premises depending on location, what style of premises it was, and what market it was appealing to. This time round it’s been such a broad brush approach that it seems to be giving very high uplifts to the value. Has the market actually moved on by 400% in the last seven years? I don’t think anyone would stand up and say that.”

But she is also concerned that many people will not appeal in time – because they do not understand the process properly.

She explained, “My worry is that many publicans will think that their rates will only go up by 12.5% and not put an appeal in when they should do.

“The actual problem hasn’t gone away and the huge increase in Rateable Value still has to be addressed, so you really need to lodge a rating appeal after April 1, once you’ve received your valuation notice.”

Gary Louttit of Shepherd Chartered Surveyors agrees, “The Revaluation has been, and continues to be, a hot topic both in the licensed trade and in the political world on both sides of the border.

“This is not the first Revaluation and will almost certainly not be the last, but it does seem to have been the most contentious, for a variety of reasons. Much of the ‘noise’ surrounding the Revaluation has been politically motivated, but the fact remains that the Revaluation affects every single ratepayer. Some ratepayers will see their bills fall, some will see theirs stay roughly the same, whilst many others will face increases – sometimes very substantial ones at that.

“Whatever the circumstances – win, lose or draw – every landlord and every occupier has the right to appeal the Rateable Value of their property before the end of September 2017. Rating can be complex, but given that the Rateable Value of a property is fundamental to the rates bill calculation, and that it is the only part of the calculation that can be appealed, I would strongly urge ratepayers not to sit back or simply accept their new Rateable Value.

“I would also strongly suggest that ratepayers contact their rating advisers now to discuss the implications of these increases and to ensure that everything is in place at the earliest date to start the process of appeal.”

David Melhuish, Director of the Scottish Property Federation, suggests that licensees should look into employing a rating expert to look at their current valuation – especially given they could be stuck with it until at least 2022.

David added, “The cap is welcome in so far as it goes but it is really just a sticking plaster. We need to see fundamental reform of the system and we also need a fundamental rethink of the methodology applied to licensed premises by the assessors in Scotland.”

Donald Macleod of Holdfast comments, “If what I am hearing is true and that the Scottish Government is now saying that the business cap rate is a retrospective relief based which will only be considered on appeal after they have first paid up, then I am appalled and very disappointed with the Scottish Government.

“That is clearly not on, that was not in keeping with the spirit of what we thought was the agreement. As an operator who spent a lot of time and considerable effort through the media, successfully highlighting the outrageous demands and huge, discriminatory percentage rises the hospitality sector faced in their RV’s this is totally unacceptable and, unless the Scottish Government immediately change their questionable stance, issue proper guidelines and inform local councils to automatically introduce the cap, rather than insisting on a pay first appeal later policy then I would urge the hospitality sector to seriously consider a complete boycott of payment.

“Play fair and we will pay our fair share. If not then we all suffer.”

David Hart, Chief Financial Officer of Glasgow-based Redefine|BDL Hotels (RBH), says hospitality businesses need to keep calm and focus on the job in hand whilst lobbying for change.

He added, “The hotel owners we work with will be directly, and significantly, impacted by changing business rates – just one of many rising costs facing the hospitality industry. It’s not a cost that can be easily offset by directly-related price increases for the end customer, so we’re taking a pragmatic approach and continuing to focus on generating healthy returns for our owners by looking at how we can transform every part of their hotel’s business so that any increases won’t hit them as hard.”

However this situation plays out over the next few weeks and months, the advice from experts and old hands alike is clear: Get your application for the cap off to the council, get working on your appeal – and think seriously about employing a rating expert to help you this time round.

It might turn out to be money very well spent.