The founder of a co-working space who had warned that his business could face collapse over an “outrageous” backdated business rates bill, has been granted permission to apply for a Judicial Review of his case, granted on “all grounds”.
When granting permission, the Honourable Mrs Justice Lang DBE stated that: “The Claimant has raised arguable grounds which merit consideration at a full hearing.”
Hugo Warner, co-founder of the Fisheries London Limited, a workspace in Hackney, East London believes that his business had been singled out with an “illegal” £500,000 additional tax charge dating back to 2023 -a bill the company is unable to pay. This is a 150% increase to the rates already paid.
The case has prompted fears of a stealth tax raid on offices with multiple tenants by the current Government and has caused uproar in the flex space industry.
According to John Webber, Head of Business Rates at Colliers, who are advising the Fisheries, HMRC Valuation Office (VO), which handles business rates decisions, chose to re-rate the Fisheries shared office building as a single establishment, rather than charging it as separate units.
When charged separately the individual tenants in the building are assessed for business rates but are able to claim small business rates relief, and the administration of the tax is handled by the building operator.
This has been industry practice for years. However, over the last year the VO (now submerged into HMRC) has been moving towards assessing serviced offices as a single property, putting all the rates bill on the operator, despite the fact they have occupiers in their buildings. Not only that, in some cases they are backdating the claims to the beginning of the last rating list- 2023.
In the case of the Fisheries, facing a vast historic tax claim threatens the future of the business. The owner of the business says if he is forced to pay the backdated bill, the company would become insolvent and go into administration. He claims he has been singled out, as a test case, as his nearby competitors are not facing such bills at the moment, putting him at an unfair disadvantage.
Industry commentators believe this new policy has been instigated as a result of pressure from the Treasury to increase even more income from business rates. In a letter sent by Rachel Reeves to Mr Warner’s MP, the backbencher Dame Meg Hillier, the Chancellor defended the approach of the VO:
She wrote that the agency had concluded that “most serviced offices will need to be assessed as a single property, unless clear evidence demonstrates a need to split.” “Decisions were being made on a “case by case basis” but the agency was looking to “clarify the application of case law on serviced offices.” The agency would then “consider its approach to the rest of the sector.”
The Chancellor added that applying a single rating to the building that falls on the operator would mean that small and microbusinesses working inside the office “face no business rates at all”
In reality, such operators would need to pass any changes to the rates bill onto those small businesses, increasing their costs. “ It’s effectively a tax on small and microbusinesses.” says Webber. “ And for many it could just be too much.”
He continued, “The VO’s behaviour has been arbitrary, outrageous and often contradictory. It does not follow new case law, despite its claims to the contrary.”
“It is just trying to justify its new policy by picking on one small company which it thinks it won’t be able to fight back.”
Webber added, “We believe this is a Treasury bid to raise extra revenue. If it is successful the government could consider rolling this damaging policy out against the serviced office sector more widely, which would be a massive hit to providers of flex space, to small businesses and to the economy as a whole. It would be a mad thing to do, particularly in the current economic climate.”
“We are delighted that the Honourable Mrs Justice Lang DBE has granted our client permission to apply for judicial review on all grounds and we will be fighting this unfair tax all the way.”