High street watches anxiously as supermarkets go to court over business rates on ATMs

Posted by Anna.Svandova at 12:45 PM on Jun 8, 2018


Five years ago, the Valuation Office Agency (VOA) attempted to introduce business rates on ATMs.

Small businesses and big supermarkets with ATMs were suddenly lumped with a one-off bill which had been backdated to 2010. In reaction, a group of three of the UK’s biggest supermarket chains (The Co-op, Tesco, and Sainsbury’s) and Cardtronics (one of the world’s biggest ATM providers) joined forces to fight against the decision that retailers should have to pay business rates on ATMs.

Five years later, the issue shows no signs of going away. The case has reached the Court of Appeal and a lot is riding on the outcome.

If the trio of supermarket groups lose their case, it will hit them and small businesses hard. But if they win, Colliers International predicts that the grocery giants could be owed as much as £300m and the government will lose a big stream of revenue. For small businesses on high streets across the country, this case could decide whether or not they are in business in a decade’s time.

So, why has the VOA decided to apply business rates to ATMs? And what is the likely outcome of the Court of Appeal case?

The debate over what is and what is not a rateable asset has long caused issues between the VOA and businesses. Part of what complicates the issue is that, since the Localism Act was introduced in 2012, local councils have been able to keep up to 50% of growth in their business rate receipts arising from new or expanding businesses.

What’s more, since April 2017, the 32 London boroughs have been collecting 100% of business rates as a pilot scheme. So local councils have a huge incentive to claim that ATMs are a rateable asset, especially when there is so much money involved.

According to figures from Altus Group, the average business rates bill for an ATM is £2,888 this year. For a particularly busy and centrally located set of cash machines such as those at a Tesco Metro in Liverpool, it could be as much as £21,600.

However, according to John Webber, head of ratings at Colliers International, the new source of cash for local councils from the Localism Act has been coupled with responsibility. Local authorities are now expected to pay a bigger share for their local services and receive less funding from central government.

Austerity has hit local councils hard and the result is that, despite the extra money brought in from business rates, they are still strapped for cash.

Exemptions exacerbate issue

The Barclay Review of Non-Domestic Rates suggests that business rates exemptions for small businesses are also exacerbating the issue. Current government policy means that businesses with a rateable value of less than £15,000 in England and Wales and less than £18,000 in Scotland do not need to pay business rates. While these exemptions are popular, the review states that this has led to instances where entire towns do not pay business rates.

Barclay’s report suggests that these “rates deserts” exist in rural towns all over Scotland. However, Webber believes that the state of affairs in England and Wales is much the same. The lack of money coming in from these areas forces the VOA and local councils to try and take as much money from supermarkets as possible. Webber recalls cases when the VOA has tried to argue that children’s rides and bubble-gum machines outside supermarkets are also assets on which they need to pay business rates.

Jerry Schurder, head of business rates and partner at Gerald Eve, is representing Cardtronics in the case. He believes that the lack of funds facing local councils puts both them and the VOA in a predicament. “There is pressure from local councils, which causes the VOA to ask: ‘What else is there that’s not being assessed for rates that could be?’”

Webber suggests that one of the solutions to this issue might be for the government to scrap business rates exemptions for small businesses and introduce a minimum rate for all businesses. However, Webber is sceptical that this would ever happen; neither a Conservative government nor a Labour one wants to be seen making decisions that negatively affect small businesses.

He believes that the local councils’ need for money has caused the VOA to act desperately. “They work in the shadows and they’re not accountable to anyone,” he adds. All of this has led to the situation in which, as Webber puts it, “the high street is being decimated, but the government can’t afford to lose £26bn a year in business rates, either. Something has got to give”.

According to Robert Hayton, head of UK business rates at Altus Group, the outlook for supermarkets and small shops is bleak. Before the case reached the High Court, a previous ruling held that ATMs outside shops should be assessed for business rates, whereas the ones inside should not. Hayton worries about what will happen if the Court of Appeal upholds this decision.

“It is likely to make it more expensive for smaller independent retailers to offer free-to-use cash machines that are accessible from the outside of their store. This could deprive many communities of vital access to cash, given the swathes of bank branch closures,” Hayton says.

In the long run, Webber doesn’t believe the Court of Appeal case will matter. In his view, the case is likely to go to the Supreme Court. If it does, he agrees with Hayton that the previous decision will be upheld and this will lead to free ATMs moving inside supermarkets and the ones outside needing to charge a fee.

Schurder also worries that losing this case could “mean the end of free ATMs”, expressing concern about how a lack of ATMs will in turn affect smaller, cash-dependent businesses. “We’re being told everyone uses cards these days. Yet, Cardtronics gave evidence in the case which showed that 90% of independent shops’ transactions are still cash.”

He also feels this case may end up in the Supreme Court, though he highlights that this isn’t something which often happens with business rates. “It’s very rare for a case to go to the Supreme Court, yet we’ve had quite a few in recent years,” he says.

High-stakes issue

Schurder believes that this could either be due to the increasingly litigious nature of ratings, the increasingly “belligerent” VOA or the increasing pressures on businesses, which may feel like they have no choice but to take issues like these to court. Either way, it goes to show how high-stakes an issue business rates has become.

If the case does reach the Supreme Court, Hayton foresees it being overturned, pointing to the ‘staircase tax’ as an example of when the government has reversed a decision made by the Supreme Court through legislation.

“The likely alternative is that we pay a fee for our cash or see the machines disappear indoors, where they are inaccessible out of hours,” Schurder adds.

Schurder agrees that Parliament may well be forced to act if the Supreme Court decision went the way of the VOA because of how negatively the decision could affect the high street. He believes Oyster Card machines, lottery machines, coffee machines, and many similar machines in small shops and big supermarkets across the country could also be considered rateable assets if the VOA wins its case.

“If we reduce everything to the absurd in this way, there would be substantial pressure to legislate to overturn the Supreme Court’s decision,” he adds.

In a worst-case scenario, introducing business rates on ATMs could accelerate the death of the high street. However, with “rates deserts” across the country, local councils may feel that supporting the VOA’s case is their only option.

Of course, the Court of Appeal ruling may not matter if it is then overturned by legislation. If this happens, the government may finally need to consider more radical changes to the business rates system as a whole.

By Mitchell Labiak at Property Week