Business rates can have a significant impact on the sustainability of childcare settings, particularly those on a financial knife edge, so it’s worthwhile to explore rateable values across the sector, and the impact of the last revaluation, says Jo Verrill…
A complex subject, relief on business rates is set at national level but with freedoms for local authorities to provide further discretionary reliefs.
Nurseries in Wales have been granted exemption from business rates from April 2019 in a move to support sector expansion.
This came on the heels of 100% rates relief for day nurseries in Scotland, introduced from April 2018. Whilst local authorities in England have the flexibility to offer discounts on business rates, very few choose to do so.
The business rates a setting will pay are based on the ‘rateable value’ of their business premises – the open market rental value on 1 April 2015, as estimated by the Valuation Office Agency (VOA).
Ceeda’s analysis of the VOA rating list and Ofsted Early Years Register shows 53% of nursery premises have values of £15,001 or more, receiving no relief on business rates.
The true figure will be higher since rates relief is calculated on a company’s total property portfolio – taking nursery groups out of relief thresholds in some circumstances.
As would be expected, location has a big impact on rateable values. The average rateable value of a nursery in London is £176.31 per m2 whereas in the North East it is £69.09 per m2.
The business rates map (below) shows hot-spots across England, representing data for 8,797 childcare premises on both the Ofsted Early Years Register and the Valuation Office Agency rating list.
Case study: rateable values
Improvement works, extensions and change of use will influence a property’s market rental value, and therefore its rateable value. The latest revaluation of rateable values came into effect in April 2017.
Portico Day Nurseries, St Helens has a cautionary tale to tell on the consequences of taking up capital funding to extend its 30-hour provision.
The group opened its seventh nursery in October 2017, funded in part from a £330,000 capital grant to convert office premises on a business park.
Director Nicole Politis takes up the story: “Our first business rates bill for the new site was £46,500 – in line with what we had been advised and had planned for.
Within three months, however, we received notice it would increase to £71,500, an increase of 54%, with serious implications for our cash-flow and break-even point. I know of four other settings in St Helen’s which have been affected.”
Ceeda’s independent About Early Years research programme estimated the sector faced a funding shortfall of £616.5 million in 2018 (download the 2017/2018 Annual Report at aboutearlyyears.co.uk/our-reports), with funding rates failing to meet the cost of delivering early education and childcare places.
On average, payroll costs account for 73% of providers’ operating costs; whilst business rates are a relatively small part of the picture, disparities in taxation across UK countries, and within different types of provision, are undoubtedly contributing to financial pressures.
Eligibility of individual premises on the Ofsted EYR for small business rate relief…
Source: About Early Years Annual Report 2017/2018
Would you like to see childcare policy informed by a solid evidence base? Do you need up to date sector information to help plan and develop your provision? If so, join the About Early Years research panel – it’s free and there are lots of benefits for members. Visit aboutearlyyears.co.uk/the-panel.
Dr Jo Verrill is managing director at Ceeda.