The practice of forecasting for losses on appeals within Billing Authorities has been in place since rates retention came to the fore in 2013.
What do we mean by forecasting for losses on appeal?
The Valuation Office Agency is required to value all business property and it is from these valuations that the amount of Business Rates payable is calculated. Businesses, either on their own or through agents can appeal against the rateable value of their property in the hope of reducing their annual business rates bill. This might either be because they think the value was wrong from the beginning, or because something about the property has changed since the valuation date. Since Councils now retain a portion of business rates, it means that they carry some risk if values reduce. It is because of this, they need to create a provision for losses on appeal in their accounts. Billing Authorities therefore need to have a mechanism in place to estimate what these losses might be. It is the responsibility of the business rates and finance teams to work together to accrue a provision for loss on income, supported by the annual submissions of NNDR1 and NNDR3 forms.
The impact of inaccurate losses on appeals forecasting
There are a number of factors to take into account when forecasting for losses on appeals and there is something of an art to arriving at an accurate figure. Underestimate your losses and the long-term impact will result in some serious under-provisioning with a significant hole in your budget which could lead to cuts in vital services. Similarly putting money into a provision takes it out of your annual revenue. This means you can’t spend it, so over-providing for appeals may translate to unnecessary cuts in much needed services. Ultimately, it’s all about putting enough money away to prudently protect the Authority, but not so much it impacts on service delivery.
Approaches to forecasting for losses on appeal
Different Authorities apply different approaches to forecasting for their losses on appeals. Some rely solely on the stats, using algorithm-based software which re-calculates each time the Valuation Office makes a change. This is a good approach for getting a general view of the bigger picture and understanding how consequential amendments and national scheme changes impact an Authority. However, it doesn’t take into account the detail and the activity happening at a local level. Other Authorities may look at the general trends and overall percentage changes resulting from national data, but again this does not provide the full picture.
Achieving the most accurate forecast for losses on appeal
Those Authorities achieving a higher level of accuracy in their forecasts are typically looking at the national and the local data. Using external valuation specialists who are able to review complex data sets using data tools, specialist databases and who can take a line by line approach to the list ensures Authorities can withstand the scrutiny of the most thorough of internal and external audits.
By conducting a detailed analysis of the valuation list in conjunction with examining current outstanding appeals both locally and nationally, Billing Authorities are provided one of the most comprehensive and detailed forecasts available for losses on appeal.
Forecasting for the unknowns
Taking it a step further, many are also using valuation experts to help them forecast for the unknowns. Looking beyond the losses, Billing Authorities are increasingly starting to forecast for growth and factor this into their calculations. Valuers with specialist knowledge of the ratings business can assist in this by creating notional valuations off plan. This service ensures that Councils have much greater information of potential growth as well as potential losses.
Additional forecasting considerations
Another consideration when forecasting for losses on appeals is being able to identify how far the reduction will go back. It is therefore necessary to have the mechanisms in place to be able to calculate the impact of this on Billing Authorities. Similarly, being able to plan for the impact of individual, high value properties, which may have an appeal successfully upheld. The Billing Authorities achieving the most accurate forecasts are those that are factoring everything in, ensuring they have a wider, more informed pool of information from which to forecast.
The latest figures for England indicate that between 1 April 2017 and 31 March 2019 there have been 82,400 checks and 12,930 challenges on business rates of which 6,980 still remain outstanding. It is widely believed that this is just the tip of the iceberg and that over the next year or two, the number of challenges and appeals will increase considerably. The ability to accurately forecast for losses on appeals has therefore never been more important.
If you want to find out more about the ‘forecasting for losses on appeal’ services offered by the Revenues Assurance team at Wilks Head and Eve please contact atownsend@wilks-head.co.uk or call 07903 314301.