Schools Forum / Agenda Item 3
Date: 9 October 2013

REPORT TITLE: SCHOOL RATING APPEALS

Report by Lambert Smith Hampton in conjunction with Roger Moore, Head of property Commissioning, Essex County Council

Contact details: Room C210 County Hall Telephone: 01245 435310

E-mail:

1. Executive Summary

1.1Purpose of report

The purpose of this report is to highlight to Schools Forum the importance of

Business Rates appeals and rates management and the benefits of employing

the services of Lambert Smith Hampton (LSH) to undertake this work for the

Essex schools estate.

This is of significant benefit to schools because it will ensure that business rates are not over paid thereby ensuring that the maximum funding can be redistributed to schools through the Age Weighted Pupil Unit.

The report also seeks the approval of the Schools Forum, to instruct Lambert Smith Hampton (LSH) to carry out this work based on the existing MITIE contract rates and for the Service to reimburse fees at source.

1.2 Recommendations

That the Schools Forum agrees to appoint Lambert Smith Hampton on the following basis,

  • That Lambert Smith Hampton undertakes all busines rates appeals on the schools portfolio on the fee basis set out in section 5.5 below
  • That Lambert Smith Hampton undertakes the full business rates management service including rates demand validation at the fixed fee of £35 plus VAT per school (£19,285 plus VAT in total)

1.3 LSH Track Record & Specialist Knowledge

We are a national business with a network of 26 offices across the UK and Ireland. We have an established client base of Local Education Authorities and individual educational institutions.

The LSH team of rating surveyors has a proven track record of achieving considerable savings in rates payments on school establishments on behalf of Essex County Council and other Councils. Their review off of the last rating list (from April 2005) for 410 Essex Schools secured reductions in the rateable value (RV) on individual establishments ranging from £250 to £90,750 and a total aggregate reduction in rateable values of £2.75 million (an average reduction of circa £6,700 per assessment).

We can demonstrate numerous examples of gaining reductions in schools rating assessments for Council across the UK for clients including

London - We provide advice to three London Borough’s – Hackney, Lambeth and Tower Hamlets

Birmingham – LSH works for Worcestershire County Council, Walsall Metropolitan Borough Council and Leicestershire County Council.

Across the LSH Northern Rating Division, we recorded

  • Savings in rates payable under the 2005 rating list of £6.5 million from 345 educational establishments.
  • The top 20 schools and colleges achieved total savings of £1.9 million (including Manchester Grammar School which enjoyed an individual saving of £165,000).
  • For Northamptonshire County Council rating appeals for the 2005 list saved the client in region of £5.5 million, the majority of this total relating to their school portfolio. (LSH has been re-instructed in respect of the 2010 List)

2. Rating Appeals

2.1 Introduction to Business Rates on Schools

Business Rates is the commonly used name of non-domestic rates, a tax on the occupation of non-domestic property. The Local Government Finance Act 1988 introduced business rates in England and Wales from 1990. Properties are assessed in a Rating List with a Rateable Value, an assessment of their annual rental value on a fixed valuation date using assumptions fixed by statute. Rating lists are created and maintained by the Valuation Office Agency. New rating lists are normally created every five years, the last one in 2010, however, the 2015 revaluation has been postponed until 2017.

Billing and collection is the responsibility of the local authority (Unitary, City, Borough or District in respect of Essex), who are part funded by the tax, but rather than receipts being retained directly, they are pooled centrally and then are redistributed.

Appeals to reduce the Rateable Value (RV) may be made after the creation of the Rating List, and in respect of the current List may be backdated to 1st April 2010. Grounds for appeal relating to schools are normally either a change in the method of their valuation or a change in the physical state i.e. demolition of a building in whole or part, extension or refurbishment of an existing building, construction of a new structure/facility.

The method of valuation has now been modified after a multi-party agreement between the Valuation Office Agency and a number of the main Agents acting for Local Authorities, one of which was Lambert Smith Hampton.

2.2 The process of Schools rating appeals

If appointed, Lambert Smith Hampton (LSH) will inspect the school, update the existing information and run a valuation based on the latest agreed formula. If this shows that a reduction in RV could be achieved, an Appeal would be lodged with the Valuation Office Agency.

This is then programmed, the valuation agreed, and a revised RV entered into the Rating List. The local authority would then issue a refund of excess rates paid.

2.3 Rates liabilities and the financial benefits of a successful appeal

All schools physically pay their own rates, and the Finance team at ECC estimates the rates paid for the year and makes sure that the funding allocation to schools covers this, and then adjusts the funding for over/under payments. This work is for Community, VA & VC and Foundation schools (including local bank account schools).

Appealing the RV is of benefit to all of these types of school in Essex, because it ensures that the right amount of rates are paid, which overall leaves more money in the Direct Support Grant funding pot.

Fees for LSH’s services on appeal work would be based upon and effectively paid only out of reductions in the RV on a pro rata basis. The fee basis under the current contract with LSH is a one off fee equating to 5% of the reduction in the RV and is purely performance linked with no fee payable in the event that an appeal does not result in a reduction.

As an example, a reduction of £1,000 in the RV of a medium sized Primary School could result in an estimated possible saving of £3,300 over the life of the Rating List (2010-2017). LSH’s fee for the work creating this saving would be £50 (5% of £1,000 reduction) (plus VAT), which represents only 1.5% of the total potential saving in rates payable.

3. Basis of valuation

This is a valuation undertaken by formula as laid down by the Valuation Office Agency Rating Manual, Volume 5, Section 190:- The Valuation Basis for Rating of Local Authority, Voluntary Aided/Controlled and Foundation Schools.

It does not apply to Academieswhich are now to be rated on the same basis as Public and Independent Schools.

Whilst the valuation basis is different, we recommend that the same service is provided for Academies. The rates management service is required as rates demands should always be validated to ensure the correct reliefs have been applied. Also it should be noted that Academies often have a discretionary element to their assessment. Changes from central government through the Business Rates Retention Scheme will allow local billing authorities to retain an element of additional rates payments within their Borough/District. This is likely to result in Councils trying to remove some discretionary elements and so the validation of demands will become more important.

Appeals against the rating list for Academies may also result in savings and so the same service could be applied. However, as Academies mostly pay 20% of the actual rates payable figure (due to reliefs) our fee basis will need to be amended in these instances. We consider that appeals for Academy school should be treated on a case by case basis and whilst the fee will be based on reductions in RV a higher percentage of the overall savings may be applied. We also reserve the right to apply a minimum fixed fee against these appeals.

4. Opportunities for savings

4.1 Established track record in Essex

Lambert Smith Hampton (LSH) has a proven track record of achieving considerable savings in rates payments on school establishments on behalf of ECC. Most recently, in relation to the last Rating List, which was in force for five years from April 2005, as a result of successful rating appeals in relation to 410 Essex Schools, LSH secured reductions in the rateable value (RV) on individual establishments ranging from £250 to £90,750 which produced a total aggregate reduction in rateable values across the portfolio of in round terms £2.75 million, an average reduction of circa £6,700 per assessment. In respect of those cases where a reduction was achieved (excluding a small number that were subject to a 100% decrease i.e. where the school had been closed/demolished) on average across over 400 appeals the reduction in RV was circa 12% with about 70% of these schools seeing a decrease in their RV of between 5% and 25%. Mindful that many of these reductions applied over the whole five years of the last Rating List and that the standard multiplier (rate in the pound) for each of the subject years was between 42.2 pence and 48.5 pence, the settlements reached resulted in a total estimated maximumrefund/saving to ECC of in the region of £6.0 million. The largest single reduction in RV was achieved in respect of Debden Park High School, Loughton (Epping Forest District), where the RV, effective 01.04.2005, was reduced from £363,250 to £272,500, a reduction of £90,750 (25%) which was effective across the whole five year period of the 2005 List. Furthermore, the work in relation to this settlement directly lead (at no additional cost to ECC) to a £35,000 reduction (back dated to 01.04.2010) in the current (2010 List) RV.

4.2 Examples across the Country

As a national business with a network of offices around England and Wales, LSH has an established client base of other Local Education Authorities and individual educational institutions for whom, we can demonstrate numerous examples of gaining reduction in schools rating assessments. Our London office currently provides rating advice to three London Borough’s – Hackney, Lambeth and Tower Hamlets, which include schools within their portfolios, whilst through our Birmingham office we works for Worcestershire County Council, Walsall Metropolitan Borough Council and Leicestershire County Council. Across our Northern Rating Division, LSH recorded savings in rates payable under the 2005 rating list of £6.5 million from 345 educational establishments. The top 20 schools and colleges achieved total savings of £1.9 million (including Manchester Grammar School which enjoyed an individual saving of £165,000). In addition LSH were instructed by Northamptonshire County Council in connection with their rating appeals for the 2005 list (and have been re-instructed in respect of the 2010 List) and our work saved this client in region of £5.5 million, the majority of this total relating to their school portfolio.

4.3 Future Savings – 2010 Rating List

Through the key involvement of Terry Appleby (LSH Chelmsford) and Graham Heilbuth (LSH St Albans) as instrumental members of a national schools rating negotiating committee (made up of a small number of private sector rating surveyors/firms representing appellants in general and staff from the Valuation Office Agency), LSH has inside/detailed knowledge of the new formula for calculating the rating assessments (2010 List) of state sector schools which has been agreed in recent months and upon which all new appeals under the present List will be settled. This agreed 2010 National Schools Rating formula on our assessment should result in a reduction of between 3% and 20% in the current RV for most schools in the County on the assumption that any changes to the buildings, especially improvements or extensions/new buildings added have been notified to the Valuation Office.

5. Rates Management

5.1 Background

Lambert Smith Hampton (LSH) Rates Management is one of the leading providers of business rates management and audit advice within the United Kingdom. Established in late 2005, the team is well qualified to provide a valuable service to Essex County council using a combination of expert knowledge, efficient processes and information systems that ensure that Essex County council have properly met their business rates obligations, whilst reducing costs where additional savings are achieved. Today, Rates Management provides services to both single property owners and clients with multiple property portfolios managing in excess of 4300 properties and securing additional savings to date totalling £13.9m.

5.2 Approach

Lambert Smith Hampton will provide Essex County council with a dedicated resource and single point of contact within the specialist Rates Management team.

David Rainsford, Director and Head of Rates Management in Birmingham will deal specifically with the implementation of the service as currently provided to the non-schools estate within the Essex County Council property portfolio and manage its delivery and output. David will ensure his team who are experienced in local authority billing procedure and rating law act at all times in Essex County Council’s best interests, driving value into the instruction, by providing proactive delivery of the Rates Management service so as to secure the most accurate and lowest possible rate liabilities and generate additional savings, across the portfolio.

David and his team will also liaise with rating colleagues in who currently service your Rating Appeal portfolio. Having intimate and established knowledge of Essex County council’s properties allows for a seamless combined approach and the expectation of securing the lowest possible assessment and liability for Essex County Council.

5.3 Service Delivery

We recognise Essex County Council’s need to employ rating specialists and thus help to minimise the administrative burden of managing your rating liability.

We would also look to partner with the Schools Forum to provide more accurate business rates data and generate additional savings across the whole portfolio. This allows us to focus on getting results for individual schools and for the Council as a whole.

We offer the specialist technical knowledge and understanding required to undertake this work. In taking over rating activities we enable the schools concerned to focus on the delivery of education services whilst we make real savings on their behalf.

5.4 Understanding your requirements

Business Rates Demands

Through the existing contract with ECC, LSH delivers Rates Management, a client-valued service that calculates Essex County Council’s business rates liability and manages the processing and payment of business rates demands. We meet Essex County Council’s requirements through proven processes, a bespoke structured approach and continued innovation. We use our expert knowledge, an established process and unique information systems to ensure that Essex County Council continue to meet their business rates obligations and maintain cost control therefore minimising Essex County Council’s liability.

Our systems draw upon validated historic information together with current live alterations and generate virtual demands. These are then used to verify every demand element on a revised assessment with little manual intervention required. This is an important approach as a significant proportion of demands are incorrectly calculated when true facts are known.

Demand validation and verification covers the following:

  • Compliance with legal requirements
  • Year on year changes in legislation
  • Rateable value alterations by surveyor, Councils and the Valuation Office Agency
  • Revised demand calculation from increases and reductions in rateable value
  • Transitional relief
  • Demand value challenges with local authorities
  • Transitional certificate calculations & applications
  • Splits and Merger calculations
  • Disposal and acquisition
  • Business improvement districts requests
  • Business Rates Supplements
  • Business Rates Retention

A change to an assessment from an appeal or revaluation by the Valuation Office Agency generates a revision to liability; this increases your level of administration. To reduce this, all correspondence relating to business rate liabilities can be redirected to LSH as first point of contact.

The benefits of this change would be: -

  • LSH manages the correspondence flow between all parties i.e. VOA, Billing Authorities, Rating appeal agent, Schools and Essex County Council. When VOA notices are received a note is place on the database to expect a revision to the property. The surveyor dealing with the appeal is also advised to decide course of action and allow and additional appeal to be placed or bring an appeal forward.
  • The identification and application of appropriate transitional certification is made at this stage which has an effect on the liability of the property. If no action is taken which is time barred, applicable increases your liability may apply and additional savings lost.
  • Revised demands from the billing authorities are validated in advance of payment. This reduces the opportunity for under/overpayments on accounts. Receiving demands before payment is made allows for us to correct any anomalies with the billing authorities and adjust instalments moving forward. Incorrect calculated demands are withheld for payment.
  • Refund amounts are verified and application of interest validated before acceptance by the client. This reduces the billing authorities applying credits on account and in turn the omission of interest payable. This allows amounts to be accounted for in the year they applied which leads to more precise budget forecasting. All amounts due are requested to be refunded electronically or by cheque dependent upon size of value. This allows for refund amounts to be received by one source and validated against demands and avoids problems whereby refunds are banked by one function and demands received by another. The two don’t always correspond as refunds can differ from amounts shown on demands at the time of receipt.
  • Every revised demand following an increase or reduction in rateable value is accompanied by a proforma advising the client why the change occurred and what values represent which years. Accompanying this is a payments schedule notifying the client of the change in instalments to be applied. Timing of payments is critical when adjusting instalments, failure to apply the correct instalments will lead to overpayments or reminders/court action/summons for non-payment.
  • All correspondence is scanned and held centrally with the original issued to you at every eventuality if required. This allows us to reduce our carbon footprint and environmental impact.

No action is required by Schools or Essex County Council, only acceptance of the change. Every Billing Authority is advised of a change in address to include c/o Lambert Smith Hampton. As and when changes in the portfolio occur we receive the correspondence direct, validate and issue to Schools by e-mail based on the agreed Service Level Agreement (normally 24hrs dependent upon query). This allows for us to react in accordance with prescribed timeframes as not to delay payment by Schools. Any query Schools raise in relation to the portfolio will be actioned and resolved by Rates Management therefore omitting the need for you to talk to the councils directly.