Museums facing huge hikes in business rates

Jonathan Knott; Patrick Steel, 20.02.2017
Some institutions set for six-figure increases following rates revaluation
Many museums in the UK are facing business rate hikes in April, with some large institutions set for six-figure increases.

In England and Wales, new rateable values are coming into force on 1 April, leading to higher bills for many museums. Councils use a property's rateable value to calculate business rates, multiplying the value by a factor set by the UK government before deducting any rate reliefs that the site is eligible for.

This year's revaluation means some national museums will see their rateable value increase by millions. According to government figures, the British Museum’s rateable value is set to increase by more than 50%, from £7.9m to £12.4m.

This would result in a rates bill of £1.14m for 2017-18 for the museum – about £350,000 more than the previous year’s bill of £785,000, according to Colin Hunter, a director at the property consultancy Lambert Smith Hampton, which acts for museums.



The figure, which does not include rates for the museum’s restaurants and shops, takes into account the 80% mandatory relief that charities receive on business rates, and the transitional relief applied by the UK government to limit yearly increases. 



A spokeswoman for the museum was not able to confirm the amount it will pay in business rates next year, saying that its valuation was linked to an ongoing court case with Camden Council.



Another museum facing a large rise in its rates bill is the Imperial War Museum (IWM), London. The museum's rateable value is due to increase from £2.4m to £3.9m and an IWM spokeswoman said that the site is expecting its rates bill to rise by more than £100,000 next year as a result.

Other nationals will also see large increases in their rateable value. The Science Museum’s rateable value is set to increase from £5m to £7.4m and the valuation for the Natural History Museum will increase from £7.4m to £12.9m.



The rateable value for the World Museum in Liverpool is increasing from £890,000 to £1.3m, while National Museum Cardiff faces a rise from £1.3m to £1.6m.

The new valuations, set by the Valuation Office Agency (VOA), come amid growing concern that the way business rates are calculated for museums is unfair.

In England and Wales, an approach known as the contractor’s method is used to calculate rateable values when the standard approach of basing valuations on the rental value of properties cannot be applied.

Based on the estimated cost of rebuilding the property, the contractor’s method is used for around half of museums and tends to lead to high valuations when applied to historic buildings. 



Not all museums are facing such large increases, but based on recent research he carried out for the Association of Independent Museums (AIM), Hunter estimates that about 90% of museums will be faced with increased rateable values in 2017-18.

"For many museums, the impact of the increase in rateable value will be dramatic," said Hunter.



Hikes in rateable value are becoming increasingly significant for museums as fewer of them are being granted the extra 20% discretionary relief that councils can award charities on top of their 80% mandatory reduction.

Tamalie Newbery, the executive director of AIM, says that authorities are becoming more reluctant to do this, partly because the shift towards councils retaining business rates has meant that they, rather than central government, are responsible for funding the relief.



“Anecdotally, across the charity sector there are more and more reports of charities finding that they are no longer automatically getting the extra 20% rebate,” Newbery told Museums Journal.

“Museums are certainly experiencing that, and expecting to experience it more over the next few years". 

She said that some museums are probably not aware that their rateable values are high, and if their council stopped granting discretionary relief, could “quite suddenly find that they’ve got really quite a big bill”. 



The combined impact of the revaluation and the withdrawal of discretionary rates relief is making things particularly difficult for some museums, said Newbery.

“I have had a number of museums contact me, some of them dealing with potentially six-figure increases in their rates.”



Newbery said that AIM would like to see the decapitalisation rate (used in the calculations to work out the rateable value) for museums reduced to the same level as it is for educational establishments. This would reduce rates bills for museums valued using the contractors’ method by about 30%, she said. In the long term, AIM would like to see charities taken out of the business rates system.



Although it can be difficult and expensive to challenge valuations, York Museums Trust has appealed against its rateable value to the VOA, with one of the trust’s key questions being whether the contractor’s method should be used. The trust expects to find out the result of a tribunal hearing in about a month’s time.



York’s appeal also covers the question of whether its trading subsidiary company should pay full rates, a similar question to that raised in the legal dispute between the British Museum and Camden Council over whether its restaurants and shops should be considered separately for business rates purposes. A spokeswoman for the British Museum said that the case had been adjourned until September.



Alistair Brown, the policy officer at the Museums Association, said: “We know that more museums are losing their discretionary rate relief, but we don’t have a clear idea of exactly how widespread this phenomenon is. It is certainly a concern that many of our members raise with us.

“We believe that it is unfair to impose higher business rates on museums at the very moment when they are facing wider funding cuts – it’s a double whammy that will put some museums that are operated by charitable trusts under real strain.



“Hopefully the York case will clarify that rates should not be calculated according to the contractor’s method, and there will be a wider move away from this approach by the VOA.”



Scotland



Scottish museums also face a change to their rates in April, with the Scottish National Gallery, National Museums Scotland, the National Portrait Gallery, and Kelvingrove Museum and Art Gallery all receiving increases in their rateable value, according to figures released by the Scottish Assessors Association.



A spokeswoman for National Museums Scotland said the organisation had received no formal notification of the rate rise, but that it was looking at an additional £125,000 a year from April, a figure that takes into account the 80% mandatory relief for charities. This increase would have an impact on the organisation's services and oblige it to review its budgets accordingly, said the spokeswoman.

National Galleries Scotland will pay £89,839 in rates for the Scottish National Gallery, an annual increase of more than £35,000 from April. 



Unlike England and Wales, the valuation of business properties in Scotland is undertaken by independent assessors funded by local councils. Rates are determined by multiplying the rateable value by the poundage rate, which is set by the Scottish government and has been reduced by 3.7% to 46.6p for 2017-18.



After any mandatory relief has been taken into account, councils have discretion over the amount of relief granted on remaining rates, which can be up to 100% if the organisation is a registered charity and the property is used "wholly or mainly for charitable purposes".



This means that although Kelvingrove's rateable value has gone up it pays no business rates as Glasgow City Council has agreed to give Glasgow Life 100% relief.



"The first step open to all those businesses who are concerned is to contact the assessor and discuss how they worked out the provisional value," said a Scottish government spokesman. "Companies have until September to appeal and we would encourage firms to take up those opportunities.” 



National Galleries Scotland is planning to appeal against individual valuations but it may take until 2020 to reach any resolution, according to a spokeswoman from the organisation.

There is no guarantee that an appeal would achieve a reduction, she added, and the increase would have to be paid in the interim.

In Northern Ireland, the last revaluation took place in 2015 and rates are due to be assessed again in 2019.

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