Hotel Business Rates – How are they calculated?

Every commercial property in England and Wales is ascribed a rateable value by the Valuation Office Agency in what is known as the ‘rating list’. The rateable value of a property is used when calculating the business rates payable amounts for each ratepayer. The rateable value is an estimate of a given property’s open market rental value at a specific date known as the Antecedent Valuation Date (AVD). For the upcoming business rates ‘revaluation’ the Antecedent Valuation Date will be 1 April 2021 and the new non-domestic rating list will commence on the 1 April 2023.

The current rating list is known as the 2017-2023 rating list, and it comes to an end on the 31 March 2023. When the next rating list begins on the 1 April 2023 many rateable values and therefore business rate charges in England and Wales will either increase or decrease overnight due to factors such as local commercial rents rising and falling, location, the business turnover and any material changes of circumstances in the locality. 

According to business rates data collected by CPRA Group there are at least 10,000 hotels in England and Wales paying business rates. The total amount of business rates collected from the hotel sector is estimated to be more than £2 billion pounds annually. The Rateable Value for hotels is calculated based on how the business could operate. The Valuation Office Agency (VOA) collects data from the trading accounts of large chain hotels, self-reported information from independent hoteliers and the VOA also liaises with associations such as UK Hospitality and agents acting on behalf of ratepayers such as CPRA Group, but without precise turnover figures from every ratepayer the rateable values of hotels and their business rates charges are some of the most bizarre and inaccurate rating assessments held within the rating list.

The Valuation Office Agency’s analysis of a hotel to determine the rateable value looks into overall accommodation income, occupancy, the number of rooms, food and beverage sales and any other revenue sources. Another major factor is location, with London hotels generally outperforming the rest of the country in both sales and profits. Interestingly it was on that basis that the VOA increased many London hotel business rates charges at the start of the 2017 rating list on the assumption of much higher turnovers than the reality. Many of these hotel ratepayers have still not appealed their rateable value assessments and must appeal before the deadline of 31 March 2023 if they want to receive business rates refunds for any overpayments made during the current 2017-2023 rating list.

Valuation Officers must also look at the type of accommodation when assessing hotel rateable values. Aparthotels, five-star hotels, country hotels, luxury boutique hotels Air B&Bs, budget hotels and guesthouses all have different features which must be considered when calculating the business rates charges. Every classification of accommodation will have different associated running costs which should ultimately be considered when determining the rateable value.

Fair Maintainable Turnover (FMT) is arguably the most important piece of information used when calculating a hotel’s rateable value. FMT is an estimate of the trade revenue for a hotel at the Antecedent Valuation Date. The Valuation Office Agency produces the Fair Maintainable Turnover figure by analysing previous years trade figures, whilst supposedly taking into account any other factors that could have impacted the turnover around that date. The hotel is then classified into a ‘Scheme’ of hotels which provides a percentage. The Fair Maintainable Turnover figure is multiplied by the scheme percentage which produces the final rateable value for the hotel. The percentage can vary depending on the expected profit, grade of hotel and overall expected performance.

The rateable value is then multiplied by the NNDR multiplier to give the total business rates payable for the year. Transitional relief may be applied if the property has experienced a large rateable value increase between rating lists. The current Small Business Rates Multiplier is 49.9p and the Standard Business Rates Multiplier is 51.2p from 1 April 2021 until 31 March 2022.

If you are a ratepayer seeking business rates advice CPRA are national specialists in all rating matters and our chartered surveyors specialise in hotel business rates appeal work. We are experts in minimising our client’s business rates costs via the Check, Challenge, Appeal system. Please contact our business rates department on 020 7770 8000 or email info@cpragroup.com.