Will Moving VOA into HMRC Just Perpetuate a Broken System?

Discussing the Upcoming VOA and HMRC Integration and Reimagining Business Rates

In this episode of 'That Retail Property Guy,' host Gary Marshall explores an announcement on the Gov UK website regarding the integration of the Valuation Office Agency (VOA) into HMRC by April 2026. Highlighting inefficiencies within the current business rates system, Gary discusses the potential impacts on retailers and other business sectors. He questions the purported savings and suggests replacing business rates with adjustments to the VAT system. Gary calls for innovative solutions to fairly distribute tax burdens without perpetuating outdated methods. This episode is essential for retail businesses concerned about impending bureaucratic changes.

00:00 Introduction to the Podcast

00:19 Government Changes to the Valuation Office Agency

02:01 Implications of the VOA Merger

03:45 Critique of the Business Rates System

07:42 Proposed Alternatives to Business Rates

10:51 VAT as a Replacement for Business Rates

14:57 Conclusion and Call for Suggestions

Related episode - Business Rates Exposed: the Curse of an Archaic System

Valuation Office Agency scrapped in government drive to slash inefficiencies - GOV.UK 
 
 

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Transcript

0:00

Welcome to that Retail Property guy with your host, Gary Marshall. In each podcast episode, we delve into topics from the perspective of a retailer as tenant sharing stories and insights through Gary's unique lens. We hope you'll be entertained, enlightened, and may be a little inspired. An interesting article slipped Low under the radar on the Gov UK website, published on the 1st of May, 2025. It was quietly entitled, changes to the Valuation Office Agency. It came from the valuation office agency, the VOA. The VOA is a so-called Wango, a quasi autonomous and non-governmental organization. Government is working to rid itself of loads of congos. Another example of which could be NHS England, which sits alongside the NHS and apparently duplicates everything and adds costs rather than saves it. The VOA works on behalf of the government, but ostensibly at an independent arm's length to value properties for business rates, and to handle the massive backlog of claims and appeals against those valuations. Regular listeners will know that I despise the business rate system. It is clunky, unwieldy, and unfair. So a small announcement like this ped my interest. Basically it announced that the VOA will be brought into their parent department, the HMRC, by April, 2026. Interesting. This a big change in how government handles its bureaucratic services intended to happen within a year. That's kind of overnight for the state machine. The article didn't contain any details, just a reassurance from the VOA that its customers, and there's an interesting word, meaning business taxpayers and their advisors don't need to take any action. There'll be no impact on the services the VOA offers. Well, we'll see about that. Various sources quoted James Murray, the ex Checker secretary to the Treasury as saying, we are determined to reduce the hassle of the tax system for British businesses and taxpayers. Ending. The inefficiency and duplication of a standalone VOA will help us drive change faster and improve value for money. Hmm. But that kind of suggests that the HMRC is recognized and applauded for its efficiency and response times, no backlogs and so on. That doesn't sound right to me. And the announcement seems to have come as a bit of a surprise to many, including the Civil service unions as well as property professionals and their clients. The occupiers of which retailers carry an unfair share of this tax burden. The unions will be concerned about the potential impact on their members, our jobs at risk, but business should be concerned that the tax man could then have a greater direct influence over property valuations and therefore on the business tax, sorry, business rates by removing any window dressing that the VOA is independent and arm's length of the tax man. This proposed change is also timed to coincide with another big upheaval in the business rate sector. The chancellor recently proposed changes, so occupiers of properties with a rateable value of half a million pounds or above, which includes many retailers would pay more on their rates, bills to fund decreases offered to occupies of buildings with an RV below that half million threshold. So we should expect there'll be a lot of interest and possibly unrest as that kicks in. And there were no details about how the migration of the VOA into HMRC will happen. The existing business rates model is complicated. It's steeped in law, in precedent and professional practices. It's also notoriously slow. I can't imagine that any other organization has a more relevant experience than the existing VOA staff. Perhaps the savings will come as some back office processes trimmed, maybe some middle management gets reassigned. But this assumes the primary intention is just to port over the function, same staff and process, just a different boss, plus an added layer of upheaval just to slow everything down. If they really want to improve value for money and reduce hassle for business taxpayers, in my view, the whole basis needs reinventing, and that's not gonna happen in an overnight 12 month blink of an eye. So what does the government want outta this? Well, the Gov UK website tells us that the move is expected to deliver between five to 10% of savings in VOA administrative costs by 20 28 29. That's five to 10% in three to four years. That seems to me more like cost shaving rather than cost saving. How about saving a hundred percent? The whole process behind the business rates model is flawed and the government is flogging a dead horse, all that VOA expense and delay all the valuations and appeals and refunds. It all simply perpetuates a Kafka esque method to charge businesses another tax. There's a link in the show notes to another episode of that retail property guy where we dive deeper into the absurdity of business rates. But just as a quick recap, the whole house of cards revolves around the VOA setting, hypothetical valuations for property, and then dealing with the appeals that businesses submit. I. It isn't anything to do with the actual property or the actual use of property. It's just a century old method to create an arbitrary measurement matrix so the government can charge tax, and that tax bears no relationship to the viability of the business that occupies the premises. I. In my humble opinion, business should pay tax based on the business. It does not on the building. It does it from a north south divide. Example might demonstrate this. A business occupying a building within the M 25 London Ring Road might pay exorbitantly more business rates than it would for an identical clone of that building within the M 60 Manchester Ring Road. Same business, different tax based, just on a perception of the value of the property they occupy. How is that fair? It's as absurd as saying a person should pay more income tax because they're tall or because they live in an affluent area. And the cashflow of business rates is an incredibly unfair burden. It can contribute to many businesses going to the wall. The basic process is the VOA ascribes, a hypothetical value to a building. The local authorities at the town hall use that value to create the rates bill. The occupier disagrees with the value that drives the size of the bill, but is obliged to pay that bill while they submit an appeal. They usually have to retain a professional advisor to help navigate around the requirements of the appeal system and to act as an expert in counter negotiating the ascribed value. So the appeals take ages. We're talking years, not months, and all the while the occupier continues to pay this tax without merit. So then finally, the occupier gets their revaluation, which triggers a refund of multiple years worth of overpayments for more successful businesses that can weather this storm, wait it out by their time. This is absolutely just a cashflow impediment, but for smaller or less successful business. Struggling to pay suppliers and staff and landlords, well, many of them might just not survive the long wait. But back to our main point of discussion, the intended migration of the VOA to HMRC, how is this most likely to be delivered? How? And what could be a drastic yet simple change that could substitute it? Sources report that the VOA supports the government to collect more than 60 billion pounds in council tax and business rates each year. Its employs around 3,800 full-time staff, of which the majority are expected to move over to HMRC. The savings are hinted as being around 4 million pounds being somewhere between five to 10% in VOA running costs. Nobody seems to be looking at savings to the business community. My suggestion, just do away with business rates completely. The VOA staff could see through all the outstanding appeals without getting dragged into new ones. And to be fiscally neutral, the government would have to find a way to collect the same funds, but without such an unwieldy and expensive cost of management. Any plan would have to be fiscally neutral after cost because we're all sensible people and we realize that the government needs tax pays to pay for stuff. So let's compare. The government collects 60 billion pounds per annum in business rates. The cost of running the VOA isn't common public knowledge, but let's take a guess. The expected savings from this merger are hinted as being around 4 million pounds, being between five to 10% of running costs. So we can extrapolate that a hundred percent of costs would be between 40 to 80 million. Pretty much 10% of the tax take from business rates just feeds the machine. Okay? Maybe this calculation isn't robust. Anyone who knows better, please let me know. But at face value, they could just close down the VOA and cancel business rates and be 40 to 80 million pounds. Better off, not 4 million. And that's excluding any costs at local authority level. For the councils which have to raise the tax demands, collect the income, and then hand it over to the central government, anyone out there know what that functionality costs us. So then we need to consider to remain fiscally neutral. How does the government top up the pot? How does it recoup the 60 ish billion It would no longer collect in business rates, as we mentioned earlier, we're sensible people. We know the government needs the tax pounds to pay for stuff, so where can it get the equivalent from? And you know, my mantra that business should pay tax based on the business it does not, the building it does it from. So we need a simple and fairer way to achieve that, which is based on business, not on buildings. So answers on a postcard, please send them to the chancellor, not to me, but drop me a comment to let me know you did it. My postcard will suggest something like this. How could government collect an equivalent sum from business, not from the general population, without having to invent a new system? With complex administration, if only there was an existing tax system that most businesses are already hardwired into, that could be easily tweaked at no extra expense, and everyone wins. Oh, if only, but hang on a minute. There is such a system, VAT. Most businesses already act as free tax collectors for the government by charging value added tax to their customers and clients. There's a complex arrangement about input output tax where the business can offset any vat it has to pay to its suppliers against the vati collects from its customers, and then it passes on the net difference to the tax man. So why not get rid of business rates and slide the required shortfall into the VAT system? And before you cry, what? Bear with me. According to its own website, the government collects three times as much vat as it does rates in 20 22, 23. It collected 158 billion In 20 23, 24, it collected 168 billion. I. Of which it says 75%. Was paid by businesses with an annual turnover greater than 10 million pounds. Retailers form a substantial proportion of that category. Now I'm comparing the numbers, but I'm not proposing that they get rid of rates and simply increase the VAT rate payable by the end consumer. There'd be outcry from the public as they would see an immediate tax hike at the point of sale. But it's the start of a suggestion. Possibly the mechanics behind the VAT system could easily support an alternative to business rates. Maybe the government could find a plan that's fiscally neutral, not by increasing the end user VAT rate, but perhaps by scaling back what businesses can offset against fat at the moment? The input output tax calculation is pretty basic. You pay HMRC what you collect, minus what you paid out. What if that offset was restricted to say only 95% of what you paid out, so you hand the other 5% to the state to replace the rates tax take. Now, in very elementary terms, the government collects about 168 billion. In fact, that is 20%. So the gross turnover by business that was subject to that must be 168 times five, which is 840 billion. The government needs to replace 60 billion from rates. That represents 7% of 840 billion. So if it's 7%, why am I suggesting only 5%? Well, in part to reflect the savings from the simplicity of the scheme. No more VOA. No more appeals, no more town hall rates, admin, but also an interesting side effect of a business wide system as opposed to a buildings based system. It would capture all business, not just property occupying business. And because it would be based on UK turnover, not global profit, it would capture those businesses who operate from abroad with a UK VAT number or move money offshore to avoid UK corporation tax. So we would've transferred the complex machinery of business rates with its VOA costs and long running appeals and cashflow impacting refunds and local authority billing costs, and made it a simple calculation that actually bears some relationship to a business's turnover. Not its profit. I understand, but its turnover. But at least that's reflective of the business. It does not the building, it does it from. And yes, it's still a tax and payable only by business for the privilege of being in business, but at least all business would bear a proportionate share irrespective of where they do business from. And yes, I know there'll be winners and losers. Some businesses might save money while others get introduced to a new cost. Nobody likes attacks, but fairly distributed. Tax is better than an unfair one. Now I realize I'm talking aloud. This isn't a plan. It isn't even costed out. It might never work. Maybe it's a rubbish idea, but you might have a better one. Let's get the best ideas together and share them with the chancellor. There has to be a better way. Don't just move VOA into HMRC and perpetuate the broken system. Thank you for listening to that Retail Property guy. Don't forget to explore more episodes and if you have ideas for future topics, feel free to share them below. For more information, visit that retail property guy.com. Thanks again for tuning in.