Pubs are closing at a rate of 80 per month according to recent data. Business rates are often cited a reason for these closures.
We wanted to provide insight on how exactly business rates apply to pubs, so you can understand exactly why your rates are what they are.
How are rateable values for pubs calculated?
It is the responsibility of the Valuation Office Agency (VOA) to calculate the rateable value, of not just pubs, but all commercial property in England and Wales. All rateable values are a representation of the rental value of the property and currently ratepayers pay roughly half their rateable value as business rates annually.
Given the fixed usage of a future tenant of a pub (people looking to rent a pub are likely going to use it as pub), the rental values of pubs are not based on floor area or quality but instead their estimated financial performance. You can see this on any letting advert for a pub which often details key financial information rather than the square footage of the property.
Consequently, to reflect the rental value, the rateable value of pubs are based on financial information rather than floor area and usage.
Fair maintainable turnover
The VOA use a percentage of the fair maintainable turnover for the pub. This being the annual turnover the pub is expected to make if run by a reasonably efficient operator. This will be calculated by looking at the type of pub, its location, the rent you pay, the income you generate and the income generated at comparable pubs.
The idea behind not just linking it one to one with turnover is to avoid rare occasions artificially driving the price; for example the Euros will bring huge additional income to pubs but this additional trade is not maintainable beyond the summer.
In a similar sense, imagining a reasonably efficient operator creates a resilience to the value being dictated by a particular operator's skill or reputation creating additional trade that could not be achieved by future tenants.
Covid-19 and business rates for pubs
The pandemic had a huge impact on pubs, hospitality and the economy as a whole. It was therefore determined that the financial factors used to calculate rateable values at the 2023 revaluation would be 1st April 2021, the thinking being rateable values would reflect a post-Covid economy and reduce business rates for those who had been hit particularly hard.
The VOA acknowledge that at 1st April 2021, the data used for determining fair maintainable turnover is noisy due to lockdowns, closures and the apprehension of the public to being in communal settings. So, to reflect fair maintainable turnover, they have stated within their guidance for pubs that they considered wider data to predict what would be the correct, sustainable turnover figure.
Whilst this may be prudent in determining the rental value of pubs extending beyond Covid-19 and represent rental values as we exit the hangover of the pandemic- the 1st April 2021 date was selected deliberately to reflect the effects of Covid-19 and using wider data effectively removes a lot of the desired impact.
This is shown in the data; the 2023 revaluation saw the average pub's rateable value fall by circa 17%, a welcome benefit. However, statistics published by the Office for National Statistics show that, pre Covid, on April 2019 the monthly turnover for the food and beverage industry was £6.3 billion, compared with April 2021 where that figure was £3.7 billion - a drop of 41%. If the desired effect of the 2023 revaluation was to reflect a post Covid economy, then the 17% drop is simply not going far enough.
How can I reduce my pub's business rates?
There a number of ways to reduce your liabilities. Your rateable value can be contested with the VOA. Reliefs targeted at supporting small, independent businesses exist and can provide crucial help for your business.
If you would like to discuss your options with experts, please call us on 0208 0950 990 or email info@hollowaybond.co.uk.
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