[2024] UKUT 232 (LC)

There is no dispute between the parties that the receipts and expenditure method of valuation is the appropriate means by which to arrive at the rateable value of the hereditament. Mr Barry Davies BSc DipLE MRICS FAAV IRRV(Hons) gave expert valuation evidence for the appellant. He is principal of Davies and Co, a practice based in Kettering which specialises in the valuation of rural land and properties. Mr Wayne Cox BSc(Hons) FRICS Dip Rating gave expert valuation evidence for the Valuation Office. Mr Cox is Head of Leisure and Licensed Property, within the National Valuation Unit (NVU).

Both experts referred to the Joint Professional Institutions’ Rating Valuation Forum (“the Rating Forum”) guidance published in 1997 titled “The Receipts and Expenditure Method of Valuation for Non-Domestic Rating: A Guidance Note”. Notwithstanding the age of this document, it is still the only guidance endorsed by, amongst others, the Royal Institution of Chartered Surveyors (RICS), the Institute of Rating, Revenues and Valuation (IRRV) and the Rating Surveyors’ Association (RSA).

In Hughes (VO) v York Museums and Gallery Trust [2017] UKUT 20 (LC) the Tribunal summarised the methodology as follows:

Until 2013 the farm was structured as a partnership. In August 2013 the partnership’s business, assets, and liabilities were transferred to Finkley Down Farm Limited. At that point the previous financial year end of 31 August was moved to 31 March. The following table, containing data produced by the farm’s accountants shows the turnover, cost of sales and gross profit for each year from 2011 to 2014 adjusted to a 31 March year end. The 2015 financial year (ending 31 March 2015) was the first year when the accounts were actually based on an April to March cycle.

Commendably, the experts have agreed a significant number of the components of the valuation, and I set these out in the table below together with the three items where small differences remain.

Mr Davies based his valuation on a fair maintainable trade (FMT) of £1,192,345, 10% less than the 2015 gross receipts. He similarly adjusted the cost of sales by deducting 10% from the 2015 total resulting in a figure of £244,326. His working expenses were aligned with the actual working expenses for 2015 but with the addition of £50,000 for a manager’s salary and £15,806 for equipment hire. This brought his total working expenses to £660,781. His net profit was therefore £1,192,345 – (£244,326 + £660,781) = £287,238. From this figure he deducted depreciation (£50,000), other income (£423) and bank charges (£20,000) resulting in a divisible balance of £217,661. He adopted a tenant’s share of 75% equating to £163,246 which leaves the hypothetical landlord with a rent, or in other words the rateable value, of £54,415. Mr Davies rounded this figure up to £54,500.

It is worth noting at this stage that Mr Cox’s valuation was rateable value £134,250, notwithstanding that the rating list entry was rateable value £100,000. He adopted a FMT of £1,325,000 based directly on the twelve months of trading leading up to the AVD. He also utilised the actual cost of sales for the same period, namely £271,475. Mr Cox added bank and financial charges of £15,800 to his working expenses resulting in a total of £619,425. His net profit was therefore £1,325,000 – (£271,475 + £619,425) = £434,100. He made provision for a renewal fund of £50,000 culminating in a divisible balance of £384,100. He adopted a tenant’s share of 65% equating to £249,668 which leaves a rent (rateable value) of £134,432. Mr Cox rounded this figure down to £134,250. The list assessment had been arrived at by taking 8% of a FMT of £1,300,000. Arithmetically this resulted in a figure of rateable value £104,000 which Mr Cox had rounded down to rateable value £100,000.

There are six outstanding issues.