MUA Response to Check Challenge Appeal consultation Part 1

Business Rates Appeal Reforms Part 1
Consultation – Check Challenge Appeal
Part 1 of 2;
Dear Danielle,

These are the representations of the machinery Users’ Association Inc., representing the interests of commercial property users, and MUA Property Services Ltd (Chartered Surveyors), the latter representing ratepayers directly within the appeals system.

I will be making my comments in two parts. This email concerns the “Determining Appeals” section; paras 30 – 32 of the consultation document. I have structured the response in this way, as the Determining Appeals section is so outrageous that it deserves a response of its own.

The question must be asked as to whether Government is prepared to live with an appeals system where the results can be widely held up by ratepayers as being “wrong” and they are left with the impression of being “overcharged” and paying too much tax? I have used stark rather than technical language here, as it is frankly the way ratepayers will see the system. This is evident from conversations I have had with ratepayers since the consultation was issued. A Government for business will think again.

The intended system distorts the principle of fairness in taxation, in particular “equality of taxation” between ratepayers is in question, which will certainly raise grounds for challenge to the legislation.

At time of writing, we do not know for certain the precise limits of “professional judgement”;

1. Will the limit be prescribed? This might give some certainty and consistency, but would be likely to result in legal challenges and test cases, possibly dragging on for years. The result of this would be to logjam the appeals system, which is exactly the opposite of the result trying to be achieved. This would leave it difficult for BAs to estimate or plan ahead for RV leakage. Prescription could actually increase the number of CCAs submitted, as ratepayers act early and often to secure their places in the queue for potential future refunds. By prescription, “overcharging” will become codified and become associated more directly with Government.
2. Will the limit be left to the VT to determine, either centrally or individually in each case? If centrally, 1 above will apply as the VT is associated with Government, despite efforts to promote its neutrality. If individually, a lay tribunal is going to have to determine the extent of professional judgement between two professionals – an impossible task which will inevitably end in more process rather than less.

Looking at procedure, how will VO caseworkers be looking at negotiation during the CC part of the CCA process? Will they be looking at maintaining a fair List or at defence of the List? As we all know, the latter, and the campaign against RV leakage, has gained ascendancy in recent years. If the limit becomes set at 10%, i.e. following certain valuation negligence cases, and defence is primary, VOs are going to become unwilling to offer small reductions in discussion, secure in the knowledge that the VT cannot order a reduction of less than 10% (n.b. 10% produces a 20% range between ratepayers, as para 31 appears to apply to under as well as over assessment). Lack of genuine negotiation will again only serve to drive people towards the higher levels of the appeals system, perhaps even to de novo hearings at the UC(LC).

As the VT will be required to give a reasoned decision, this will almost certainly require them to arrive at an RV quantum prior to considering whether the resultant figure is within or outside the set parameters. Any overcharge will be evident to all, again possibly resulting in appeals to UC(LC) on valuation and law. Also, as the VO has never formally abandoned the fair List principle, what would be their response to a ratepayer request for a Notice to give effect to a reduction of say 9%, which the VT determined but were unable to order? Will the appeal fee be refunded, if the VO subsequently raises a Notice?

I will continue with my assumption that the limit may be 10%, producing a range of sterility for the VT of 20%. If the limit is to be much less than 10%, one has to ask whether it is worth the hassle of having a limit? If it is much higher, appeals will have effectively been outlawed for most businesses.

MUA’s largest client assessment is approx. £20m RV, producing annual liabilities of around £10m. A limit of 10% could produce a legal overcharge of £1m p.a., equivalent to £5m over a quinquennial Revaluation period. If a competitor is undervalued by 10%, the range between the two will be £10m over the life of the List, equivalent to a whole year’s Rates.

Similar principles apply to small RVs, particularly for those in receipt of SBBR. An RV of £15k pays full rates from 2017, whereas an RV 10% lower at £13.5k will only pay 50% rates. This is a difference of two and a half years bills over a List.

What will the effect of any negotiations have at appeal? For example, two properties in the List at £100k RV each. Both are worth £90k each. One has been reduced to £99k during Challenge, whilst the other remains at £100k. Potentially the reduction at VT is 10% on one, but less than 10% on the other – one reduction can be ordered by the VT, whilst the other cannot.

How will the new appeals system deal with the following?

1. Appeals for splits, where the aggregate RV normally increases, either due to smaller unit sizes or because something new has been created by the split (i.e. an ATM).
2. Appeals for description change (important for EPR reliefs), where the change in RV will be minor.
3. MCCs, where the MCC effect is less than the limit. This will penalise a business at the time it needs support, particularly for temporary MCCs.
4. Property A is again at £100k RV. The VT is unable to order a result to say £91k, as it is less than 10%. Property B, next door, is identical, but has never entered the CCA system. Will the VO now serve Notice to reduce B to £91k? Will A be left marooned at £100k?

Q6; for reasons stated above, we consider the current proposals to be unworkable. They are more dangerous to the VO and BAs than they are to the perceived “appeals industry” – the latter may be diminished (or more focussed) via CCA, but the danger to the former is a real possibility of a spike in appeal activity as the legal implications of professional judgement are thrashed out.

We also have concerns that these changes will affect the overall perception of taxation by otherwise honest businesses, particularly small business and individuals. Human nature will suggest that a perception of being overcharged on one tax may lead to an increased likelihood of avoidance and non-cooperation on other taxes. This would have the potential to reduce overall revenue, rather than defend it.

We would therefore ask you to reconsider this section.

Yours sincerely,
Paul Sewell BSc (Hons), FRICS, IRRV (Hons), MEI

19/9/2016