Business rates, also known as non-domestic rates, are taxes paid to the Scottish Government on the right to use and occupy commercial property. Business rates are based on the rateable value of a property. It is the Independent Scottish Assessors that determine this rateable value. To calculate the amount paid by ratepayers, the rateable value is taken and then multiplied by the rate’s poundage. On 1st April 2023, all rateable properties will be revalued causing significant change to business rates across Scotland.
The revaluation of business rates is a necessary task for the Scottish Government to carry out as they must make sure that all rateable values reflect changes in the property market. The last revaluation took place on the 1st of April 2017, therefore, the 2023 revaluation will reflect the changes in values that have occurred over the past six years.
The Scottish Assessors published their draft assessments for the 2023 revaluation on the 30th of November 2022, and Proposed Rateable Values are to be published in March. On the 1st of April 2023, ratepayers will receive a final valuation notice. With the finalised assessment being produced in March, it only gives ratepayers a short timeframe to submit evidence for each property’s proposal. That being said, the draft assessments for the 2023 revaluation were published in 2022 allowing ratepayers to prepare in advance.
The 2017 revaluation produced little change, no Check Challenge Appeal was implemented and business essentially carried on as usual, this is due to the change with the 2023 revaluation. The main changes we will see with the 2023 revaluation is to the revaluation systems structure.
The Scottish rates system came under the microscope when the Barclay Review was published in 2017. Within this report, several recommendations were highlighted to the Scottish Government. One of the main issues raised was the consistency of the revaluations and the failure of the present system to align rateable values with market conditions. To accommodate for this the Government is introducing three-yearly revaluations from 1st April 2023.
Another significant change is to the valuation date. The valuation date has previously been two years before a revaluation came into force. The valuation date will now be based on rental and cost levels only one year before the revaluation (1st April 2022) in Scotland. This will allow more time for the markets to settle and reflect any extended impact of the lockdown1. England and Wales are to follow with the same three yearly revaluations commencing on the 1st of April 2023. However, the valuation date, commonly referred to as the antecedent valuation date, will remain two years before the implementation of the start of revaluation (1st April 2021).
A notable change has been implemented is to the current appeal system. For ratepayers to challenge their assessments they must now go through a 2-tier sequential process with a shorter timeframe than that of the current system.
The 2023 revaluation means that business’ properties will be evaluated for the first time since 2015. There has been a lot of change in the property market since 2015 with several unprecedented events impacting property values including Brexit and COVID-19. The retail and hospitality sector are examples of areas that have experienced a lot of change. These sectors might find that the 2023 revaluation could reduce existing rates providing them with a needed boost2. Although we can predict some of the impacts that the forthcoming revaluation will have on particular sectors, each property is different and the impact of the 2023 revaluation will be individual to each property or portfolio.
It is also noteworthy that in April each local authority will have the discretion to set out their own rates relief schemes for commercial properties. It is unknown how local councils will use these powers and therefore this could be an added burden that landlords and developers of commercial properties should look out for3.
What is clear at this stage is the changes that are being introduced with the 2023 Business Rates Revaluation will set the tone for the future structure of the Scottish rating system.