Business Water Charges and Rateable Value: Understanding the Change in Charging Businesses

Business Water Charges and Rateable Value: Understanding the Change in Charging Businesses

In Scotland, the charges for un-metered business water supplies are based on the rateable value of the property. Apart from premises that have been built since 1 April 2017, water and waste water charges for most premises are based on a historic rateable value from one of the previous rolls, which may have been assigned to the premise as far back as 1995, and which may be higher or lower than the rateable value assigned by the Scottish Assessors Association (SAA) on 1 April 2017 and used by councils to charge business rates.

The Scottish Government acknowledged this inconsistency of charging for water services between otherwise similar business premises and legislated that from 1 April 2018, the water industry must consistently base their charges on the most recent available rateable value (live rateable value).

Why April 2018, and not 2017?

The Government decided against coinciding the implementation of the water industry’s use of live rateable value to charge businesses for water services with the 2017 revaluation to make allowances for the time it would take suppliers to make the necessary changes to the billing system and to notify customers.

What impact will this change have on businesses in Scotland?

While charges based on the most recent rateable value will benefit the majority of Scottish business customers, it will have an adverse impact on others where the rateable value has increased significantly, such as for many businesses in Aberdeenshire. A phased approach is supposed to strike a balance between those businesses that are facing increased charges and those that are benefiting from lower ones.

Will there be transition arrangements?

Evidently, businesses that fall into the latter category would like to have the new system introduced as quickly as possible, while those businesses facing increased charges would appreciate as much time as possible to plan for the impact. Ultimately, this is also supposed to protect the competitive water retail market and to ensure that customers can continue to switch between service providers during the transition period.

The Scottish Government requires retailers to put in place transitional arrangements which should be completed by April 2020, which is the final year of the water industry’s current charging period. Consequently, the transition is phased over three years between April 2018 and April 2020. From 1 April 2020, all rateable value based charges will be based on the live rateable value, and water retailers will automatically update rateable values as they change.

So how much will I have to pay during the transition period?

In each of the next three years, the rateable-value-related parts of your business water bills will decrease or increase in equal cash instalments.

A customer currently pays £600 pa for water and waste water services based on a historic rateable value. As a result of the change to live rateable value, the bill from 1 April 2020 will only be £450 pa, a difference of £150pa. The annual charges will decrease in equal cash instalments of £150 : 3 years = £50 per year.

The result is the following glide path:

2017-2018: £600

2018-2019: £550

2019-2020: £500

2020-2021: £450

What if my rateable value changes during the transition period?

If you have challenged your rateable value in the appeals period between 1 April 2017 and 30 September 2017,  and your rateable value changes as a result of winning this appeal, this will be amended and your water supplier will recalculate your charge glide path. The same holds true if your rateable value changes as a result of an extension or partial demolition of your premises.

However, if your rateable value changes due to any other changes to your property – major changes such as dividing it into multiple units or a complete redevelopment – your glide path will not be continued and your new charges will be based on the revised rateable value.

Will the unit price for rateable value based charges change?

Yes. The change to use the live rateable value is not a revenue raising measure, and to ensure that the water industry does not raise extra money from customers, the unit prices (the charge per £ of rateable value) will reduce.

What can I do to avoid being charged for water based on my rateable value?

All water retailers have to follow the phased charging approach, but some may still offer additional discounts to encourage switching. In any case, it’s worth benchmarking your current retailer against other retailers in the market.

As an alternative to being charged on rateable value, you could fit a water meter so you can be charged for your actual water and waste water use rather than a proxy. If, for some reason, a water meter cannot be fitted, a formal assessment of the water and waste water that your business uses at the premise in question could be arranged with your supplier and used instead of the rateable value.

There is, however, no alternative to the rateable value when it comes to the calculation of the property and roads drainage costs your will be charged. These costs incur regardless of your own water and waste water use since they relate to the rainwater that drains from private property and public roads into Scottish Water’s sewers.

Please be aware that you could still be better off by the move to live rateable value even if this is higher than the rateable value that your water charges are currently based on. This is due to the aforementioned change in unit prices.

If your water and waste water services are metered and only your property and roads drainage is charged based on rateable value, your live rateable value could be up to 29% higher than the rateable value currently used by your water supplier, and you should still be better off. If you are charged for all your water related services base on rateable value (including water and waste water), your live rateable value could even be up to 39% higher for you to be better off.

If you would like to discuss your options to move away from a rateable value-based charge for water and waste water, are considering benchmarking water suppliers, or have any general unanswered questions, please contact us and we can help you.

Source: Scottish Government

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