Will your pharmacy be prone to increased costs in the business rates revaluation? Chris Vowles, head of valuation – medical, at Christie & Co, assesses the facts

After a year of changing horizons for pharmacy operators and uncertainty regarding the funding cuts, 2017 will bring some further changes to the business landscape.

In April 2017 the new business rates assessment will come into effect. From our own data, we expect to see a number of significant cost uplifts for community pharmacy businesses – particularly for health centre pharmacies.

With this approaching, it is important for pharmacy owners to check what change in costs they will be liable for, whether there is a case for appeal and whether they might need to devise a plan to help mitigate any potential loss in turnover and gross profit as a result.

Business rates explained

Business rates are a local tax paid by occupiers of all non-domestic property. Rateable values are assessed by the Valuation Office Agency (VOA) in England and Wales, and the Scottish Assessors Association (SAA) in Scotland.

The tax is collected by the Local Billing Authority and the amount payable depends on the rateable value of the property, the Uniform Business Rate, and any rate relief schemes that apply.

The UK economy has seen a vast change since April 2008, when business rates were last assessed. It is generally accepted that the 2010 Rating List was conservative in many areas of the country. Consequently, many occupiers are set for a considerable increase in their rates, which in turn will have an adverse impact on profitability.

The 2015 revaluation was set to realign rateable values to reflect the market as at April 2013. This would have been after a period where rental values in many areas across the UK had fallen as the country recovered from recession, particularly on the high street. However, in October 2015 the Government announced that the process would be postponed for two years until April 1, 2017.

The intervening period saw growth in rental values, particularly in London and the South East. This is contrary to other regions that have seen a continued decline in rents. As a result of not having business rates reassessed for such a long time, the 2017 list will have a significant impact on all business owners, with many now facing a sizeable increase in their rates liability.

Needless to say, pharmacy businesses will simultaneously experience the impact of the funding cuts as well as a further increase in the National Living Wage from April 2017. There is a lot to take on board.

The 2017 list will have a significant impact on all business owners, with many now facing an increase in their rates liability

Uniform Business Rate

The Uniform Business Rate for 2017/18 – a multiplier used in England and Wales to determine how much money owners of commercial and industrial properties must pay each year to their local governments – has yet to be published, although many experts are predicting close to 50p (currently 49.7p). This will be a change from 2000, 2005 and 2010, which all witnessed a fall in the UBR.

In our recent experience, rates payable (not to be confused with rent and rates) are tracking at 1.5-2.5 per cent of turnover. Clearly, a significant increase in rateable value and the UBR will have a double impact that will, unless other costs savings can be made or additional turnover derived, result in a direct reduction in profitability. We predict that integrated health centre pharmacies and dental practices will see the most significant increases in rateable value.

Appeals can be lodged from April 1, 2017, as soon as the 2017 list comes into effect. It is vital that professional and accurate advice is sought before this time and a clear strategy will be key.

One of the main talking points around the 2017 list is the introduction of a three-stage appeals process (check, challenge, appeal) which is hoped to make appeals quicker and more efficient.

Check, challenge, appeal

This process in outline is as follows:

• Check – ensuring the relevant facts are up to date and accurate, with any agreed errors quickly corrected
• Challenge – allowing a business to challenge the rateable value on which its business rates bill is based
• Appeal – offering the opportunity to appeal to an independent valuation tribunal.

No longer will a ‘blanket approach’ or an ‘appeals strategy’ be relevant, but rather a full due diligence process for each and every single property that you own will be needed, placing further emphasis on expert knowledge and an intimate understanding of how businesses work in order to identify incorrect assessments.

2017 will be an interesting year for the pharmacy industry, with a lot to swallow. With the right business strategies and advanced preparation for the potential rise in cost of running a pharmacy, business owners should be well equipped to weather the storm.