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Charities and hospitals face rates hike under new regime

Published on Thursday, 09 March 2017

Charities in the London Borough of Westminster are facing a business rates bill for the first time.

 

Most charities don’t pay any rates as they are entitled to a discount of 80-100%, but 70 charities in Westminster face the prospect of a 10% bill from Westminster Council. Charities present their case to the council which decides if it should pay rates from zero to 20%.

 

It means these charities will be forced to divert funds into making payments to the council when the new rates system comes into force on 1st April.

 

Rates are calculated according to the size and value of the property out of which the organisation operates and the revaluation was announced last year, the first time since 2010 when values were calculated at the time of the downturn in 2008. 

 

The long overdue revaluation will see winners, where property value has fallen and rates will go down, and losers, where property values have increased and therefore the rates will go up, with London and the South East hit hardest. The new rate calculations are based on property values in 2015 and since 2008 areas such as London and the South East have seen property values soar.

 

It’s not just charities which will be affected under the revised rates system, according to a new analysis NHS hospitals and GP surgeries in England and Wales will need to cough up an additional £635 million over the next five years.

 

Health authorities, already under huge financial pressure are looking at an average business rates rise of a third by 2021, have threatened to take legal action.

 

The rates system has been criticised extensively by several business associations pointing out discrepancies such as hugely successful and profitable internet companies which only need warehouses in cheap out-of-town locations to fulfill  its business model compared to shops such as John Lewis with its network of physical stores up and down the country. According to The Telegraph report, business rates specialists CVS calculated online retail giant Amazon will see its rates bill fall by 1.3% for its nine distribution centres under the new valuations compared to High Street retailers in the South East where rises are as much as 400%.

 

In these times of cash-strapped councils, it is perhaps not surprising that some are looking at clawing back funds from anywhere possible. Reducing the 20% discretionary relief which councils can choose to award to charities on top of the 80% discount is perhaps an obvious target even though such projects may be providing much needed support in the local community.

 

Westminster Council’s rating advisory panel recommended the level of discretionary relief should be reduced from 20% to 10% so whilst the current rate bill is not affected, next year some charities face the prospect of having to fork out 10% of business rates under a the newly re-valuated system which itself sees significant increases in the capital.

 

According to a report in Civil Society, the news website dedicated to charities, the sector is facing a business rate bill of just under £350m in the current financial year which will rise to just over £390m next year.

 

The figures from the Department for Communities and Local Government show that business rate relief is the most valuable tax relief charities receive and considerably higher than Gift Aid, which is valued at £1.3bn. The figures indicate a huge rise in the level of mandatory business rate relief they receive – up from £1.58bn this year to £1.77bn in the financial year beginning in April, but discretionary relief, currently worth £46m, is expected to rise to just £51m next year equating to around only a ninth of the potential rebate. The shortfall leaves charities facing a significant tax bill. 

 

Health authorities, meanwhile, appear not to have resigned themselves to their higher rates fate. More than 150 have teamed up and have threatened to mount a major test case against a local authority unless they are granted an exemption or rebate.

 

The analysis quoted by The Telegraph comes from Gerald Eve, a rates advisory company, and found that business rates for hospitals will rise from £328m this year to £418m in five years’ time. For GPs and health centres, rates will increase from £257m to £332m a year over the same period.

 

Some face a massive leap, such as Peterborough City Hospital which will see its rates bill increase from £2.5m to £4.8m by 2021 and the University Hospital Birmingham NHS Trust will be liable for £7.6 m, up from £4.2m.

 

The bills are bigger when compared to the cost rises facing Westminster’s charities, but then so are the implications. If health authorities are forced to stump up the cash, they will need to find even more cost savings than they are already. 

 

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