Transitional Relief Scheme for 2017 onwards
Outline
One of the underlying principles of the business Rates system is that businesses should face some certainty with regard to their rates bills. This is why the multiplier is only allowed to increase year on year by the rate of inflation (so that businesses know they will only face an increase in their rates bills of the amount of the inflation rate).
However, when properties are revalued for a new rating list it is not possible to ensure a uniform change in rates bills for all properties. This is because a revaluation is meant to be revenue neutral (so the overall tax burden for the country as a whole is not altered (in real terms)) but the rateable values for different properties and types of properties can change quite a lot. So, the Government re-sets the multiplier in a revaluation year so that the total of all the new RVs in the country multiplied by the new multiplier gives the same overall revenue as before (adjusted for inflation). This means that if every RV in the country increased by, say, 20% everyone’s rates bill would stay the same (adjusted for inflation) as the multiplier would be reduced by approx. 16% to give the same rate payable. However, RVs throughout the country, and within an authority’s area do not change uniformly although they do all have the same new multiplier applied to them. This means that some business face large increase or decreases in their Rates bills.
To mitigate the effects of these potential large increase or decreases in rates bills the Government has introduced a transitional scheme (as it has done at every other revaluation year) that limits the amount of increase, or decrease, a property can face when comparing the 2017/18 liability with the 2016/17 liability. The idea is that the money “raised” by limiting the amounts of decreases goes to “pay for” the relief given to properties facing large increases.
To do this the Government has set the amounts by which a property’s rates can increase or decrease by (taking into account inflation) year on year during the life of the list and depending on the rateable value of the property as follows:
Year / Maximum Increase in Rates / Maximum Decrease in RatesRV < £20,001 / RV > £20,000 and < £100,001 / RV > £100,000 / RV < £20,000 / RV > £20,000 and < £100,001 / RV > £100,000
2017/18 / 5.0% / 12.5% / 42% / 20% / 10% / 4.1%
2018/19 / 7.5% / 17.5% / 32% / 30% / 15% / 4.6%
2019/20 / 10% / 20% / 49% / 35% / 20% / 5.9%
2020/21 / 15% / 25% / 16% / 55% / 25% / 5.8%
2021/2022 / 15% / 25% / 6% / 55% / 25% / 4.8%
The inflation rate for calculations in 2017/18 is 2%. This has to be factored in to give the total increase/decrease allowed to ensure the above figures are in “real” terms e.g. a property with an RV of less than £20,001 would have any increase in its Rates capped at 5%, plus a further 2% for inflation giving a total maximum allowable increase of 7.1%
Operation of scheme
The scheme takes the rates payable for 2016/17 (based on the RV as at 31/03/17) based on the small multiplier and on the basis that the full charge was being paid and compares it with the rates payable for 2017/18 based on the rateable value as at 01/04/17 based on the small multiplier and on the basis that the full charge is being paid. The maximum by which the 2016 charge can increase or decrease by is set out in the table above (taking into account inflation). If the 2017 charge is within the maximum increase/decrease allowed then no transitional relief/premium is applicable and the rates payable are determined in the “normal” way i.e. by multiplying the RV by the appropriate multiplier (the small multiplier if the RV is below £51,000 and the large multiplier if the RV is £51,000 or above). If the 2017 charge exceeds the limit set on increases/decreases then the rate payable are capped at the increase/decrease level, but adjusted for any other reliefs. As the test for transitional relief has been performed with the small multiplier an amount equivalent to the RV multiplied by the difference between the two multipliers is added on to the charge if the property does not qualify to be charged at the small business multiplier.
Method of calculation
The following steps are followed to perform a calculation for transitional relief purposes:
Step 1: Establish the Base Liability. In effect this is the equivalent of the rates payable for 2016/17 (based on the RV as at 31/03/17 and the small multiplier).
Step 2: Establish the notional chargeable amount. In effect, this is the rates payable for 2017/18 (based on the RV as at 01/04/17 and the small multiplier).
Step 3: Compare the rates payable for 2016/17 with the ones payable for 2017/18 to see if the property is a “gainer” i.e. its rates are reducing, or a “loser” i.e. its rates are increasing.
Step 4: Apply the appropriate fraction (this is the amount the rates are allowed to go up or down by according to the above table and taking into account inflation)to the 2016/17 rates to identify the maximum/minimum (depending on of the property is a loser or gainer) charge that can be applied.
Step 5: Identify whether or not the maximum/minimum has been exceeded by the 2017/18 rates payable.
Step 6: Calculate the actual rates payable. If the maximum/minimum levels have not been exceed then the rates are calculated in the “normal” way and any reliefs applied and the relevant multiplier used. If they have been exceeded then the limit gives you the rates payable that will then need adjusting if the small multiplier is not applicable or if any other reliefs are applicable.
NB- as any transitional relief/premium forms part of the actual charge any transitional relief/premium is applied to the account before any other reliefs are calculated.
Worked Examples.
Example 1
A property had a RV of £40,000 in the 2010 rating list and it now has a rateable value of £70,000 in the 2017 rating list.
Step 1. Establish the base liability.
This is the RV as at 31/03/17 multiplied by the small multiplier for 16/17
40,000 x 0.484 = £19,360
Step 2. Establish the notional chargeable amount.
This is the RV as at 01/04/17 multiplied by the small multiplier for 17/18
70,000 x 0.466 = £32,620
Step 3. Compare. The rates for 17/18 are higher than those for 16/17 so the property is a “loser” i.e. the rates are due to go up.
Step 4. Check the maximum allowable increase/decrease. In this case the rates are due to go up so from the table above we can see that for a property with a RV of £70,000 the maximum allowable increase is 12.5% (plus inflation).
As 2016/17 rates were £19,360 the most these can go up to is £19,360 x 1.125 (12.5% allowable increase) x 1.02 (2% inflation) = £22,215.60
Step 5. Does transition apply? As the notional chargeable amount (the amount found by RV times multiplier) is greater than the maximum the rates are allowed to go up by, a transitional adjustment needs to be made to limit the rates charge.
Step 6. Calculate the actual rates payable. The transitional calculation above is based on the small business multiplier. In this case the occupier would not be entitled to small business rates relief so we have to add back in the “supplement” charged to ratepayers not entitled to SBRR. So we add to the maximum allowable charge the RV times the difference between the small and large multipliers i.e. £22,215.60 plus £70,000 x 0.013 = £22,215.60 + £910 = £23,125.60 actual rates payable.
In the above example the system would show as follows:
Charge: £32,620 (RV times by small multiplier)
Transitional Adj: -£10,404.40 (to take the charge down to the maximum allowable)
Supplement: £910.00 (because not entitled to SBRR)
Example 2
A property had a rateable value of £110,000 in the 2010 list and £60,000 in the 2017 list.
Step 1. Base liability = £110,000 x 0.484 = £53,240
Step 2. Notional Chargeable Amount = £60,000 x 0.466 = £27,960
Step 3. Compare. The rates for 17/18 are lower than for 16/17 so this is a gainer.
Step 4. Maximum allowable decrease for a property with an RV of £60,000 is 10%. So maximum rates can be decreased to is £53,240.00 x 0.9 (10% reduction) x 1.02 (increased for inflation) = £48,874.32.
Step 5. Does transition apply? As the notional chargeable amount (the “normal” rates) is lower than the maximum allowable decrease the decrease is capped at the maximum allowable decrease amount and so transition does apply.
Step 6. Actual rate payable are £48,874.32 (maximum allowable decrease amount) plus the supplement for not being entitled to SBRR = £48,874.32 + £60,000 x 0.013 = £49,654.32.
This will show on the account as:
Charge: £27,960
Transitional Adj: £20,914.32
Supplement: £ 780.00
In this case the transitional adjustment is an addition to the charge (to limit the amount of decrease).
Example 3
A property has a RV of £20,000 in the 2010 list and £21,000 in the 2017 list.
Step1. Base Liability = £20,000 x 0.484 = £9,680.00
Step 2. Notional Chargeable Amount = £21,000 x 0.466 = £9,786.00
Step 3. The rates for 17/18 are higher so it is a loser.
Step 4. Maximum allowable increase is 12.5% plus inflation. i.e. £9680.00 x 1.125 x 1.02 = £11,107.80
Step 5. As the notional chargeable amount (i.e. “normal” rates) is lower than the maximum allowable increase amount no transitional adjustment is required (because the actual increase in rates is less than the maximum allowable increase.
Step 6. Calculate the rates in the usual way i.e. RV x appropriate multiplier
= £21,000 x 0.466 = £9,786.00
Example 4
A property has an RV of £20,000 in the 2010 list and £13,500 in the 2017 list. The ratepayer does not occupy any other business premises so he will be entitled to SBRR.
Step 1. Base Liability = £20,000 x 0.484 = £9,680.00
Step 2. Notional Chargeable Amount = £13,500 x 0.466 = £6,291.00
Step 3. The rates for 2017/18 are lower so it is a gainer.
Step 4. Maximum allowable decrease is 20% plus inflation i.e. £9,680.00 x 0.8 x 1.02 = £7,898.88
Step 5. As the maximum allowable decrease amount is higher than the notional chargeable amount transition does apply.
Step 6. The charge is the maximum allowable decrease amount (no supplement is added back in as the rv is less than £51,000). As the RV is between the threshold for 100% SBRR (£12,000) and the threshold for 0% SBRR (£15,000) the amount of relief is tapered: in this case the RV lies halfway between the thresholds so the ratepayer is entitled to 50% relief. So the actual amount payable is:
£7898.88 (maximum allowable decrease amount) divided by 2 (as entitled to 50% SBRR) = £3,949.44.
This will show on the account as:
Charge: £6,291.00
Transition adj: +£1,607.88 (to limit the decrease in rates to the maximum
allowable decrease amount)
SBRR: -£3,949.44 (50% of the charge payable after transition)
Payable: £3,949.44