Money Talk: How to help with your business rates revaluation

The latest round of property valuations for business rates purposes is now in full swing. Since early February, the Valuations Office Agency (VOA) has been issuing questionnaires to thousands of businesses across England and Wales, and a similar exercise is happening in Scotland. The information will be used to update the rateable values of business premises as at a nominal date of April 1, 2015, with this forming the basis of the business rates to be charged from April 2017.

Now we’re not trying to tell you how to get the best result out of the entire revaluation process. There are many specialist surveyors and rating advisors who are experts in this field, and who will be more than happy to advise you through the whole process. Our purpose here is two-fold: firstly to stress that you can’t just ignore the form that arrived in the post failure to complete and return it within the 56-day period from receipt can incur an immediate fine of £100. Secondly, to point out that while all businesses face questions relating to financial information, there are some sections of the form unique to petrol retail forecourts, and those require quite detailed data which you won’t find in your annual accounts but which can have a major impact on the final rateable values (and hence on your rates bills in 2017).

A little background

The purpose of the valuation is to establish a nominal open market rental value for your business premises. As a result of various representations made to successive governments by trade bodies, as well as some case law over the years (mostly from challenges by oil companies), the system does recognise some of the peculiar aspects of petrol retailing. And it attempts to take those into account to produce as fair a result as possible. Hence why the forms ask for specific information about operational areas such as:

Agency fuel sales. It is recognised that a retailer does not make anything like the normal margin on agency volume ie the retailer’s income is generally cost plus an agreed handling charge. Hence the forms ask for agency volumes to be distinct from the site’s retail fuel volumes.

Bunkering. As with agency, the process recognises that the volume and income from dispensing bunkered fuel should be distinct from retail sales.

Credit account sales. This is primarily to do with the old-fashioned type of customer accounts ie those where no deposit was held. Although thankfully now largely disappeared from most sites, they were seen as an element of volume (and hence profitability) which should be treated separately in the valuation process. Ultimately the view was that a large number of small customers was more sustainable than reliance on a few very large ones, so increasing the value of the operation. Incidentally, the more usual pre-paid deposit type of credit activity is treated as normal cash sales.

Credit card sales. There is a recognition that certain sites may have an exceptionally high level of credit card sales within their total volume, and that this does have an impact on the profitability (and hence value) of the site.

Shop sales by category. Apart from total shop turnover, the valuation tries to consider whether the forecourt shop is primarily motor-related or whether the shop is more of a local convenience store, and the basis used to determine this is the sales by main category. In crude terms, it was historically taken that a convenience store would be closer in value to other shops in the local area, whereas the value of a shop still in the dark ages of ’Tobacco, batteries and accessories’ would be more directly related to the value of the fuel retail side of the business.

Car wash sales. Historically, a car wash was seen as an important part of the revenue and profitability of the site, and hence its rateable value. This meant again that information was required specifically from this activity. As many forecourt operators know only too well, recent history has seen countless rollover washes virtually abandoned by customers choosing to use hand car wash facilities that have sprung up on any available piece of land. So this particular area may well produce some interesting grounds for discussion when the new rateable values are declared.

activities that impact

The above are just some of the activities on site which have an impact on the valuation process, and why the valuation forms ask for so much specific information about these activities.

There’s little point in looking for it in annual financial accounts those are not meant to provide that much detail. If you already have comprehensive management accounts then much of the information will be in there, either explicitly (such as departmental turnover/margins) or within the backing workings (bunker/agency volumes, credit card sales proportions, etc) and your accountant should be able to extract anything you can’t see without too much effort. If you don’t have proper management accounts, then it becomes a bit more difficult. Raw data on sales, volumes, credit cards, etc, will need to be extracted from POS reports. However when it comes to profit margins, there’ll be some additional calculations required from the raw data and hopefully the end result will be close to whatever you did have in the annual accounts!

Whether you’re completing the valuation forms yourself, or paying a specialist to do it for you, you really will need to provide the most accurate information you can. If you don’t have it now, then at some point later you may be appealing the eventual rating valuation that is issued, and you’ll certainly need to provide the same detail then.

It really is much easier if all of the information is presented supported by proper, comprehensive management accounts which are specifically created for a petrol retailing business.