The Government has announced a review of how pubs and hotels are valued for business rates, following concerns that the current system doesn't always reflect the commercial reality of operating hospitality businesses. The review comes after significant increases in pub and hotel rateable values at the latest revaluation and aims to create a fairer, more transparent system for the future.

For many operators across England and Wales, this is a welcome development.

At HLWA, as BII Accredited Advisors to the Licensed Trade, we've long argued that turnover alone does not equal profitability. A busy pub can still be under immense financial pressure, which is why the current approach to business rates valuation deserves closer examination.

Business Rates and the Hospitality Sector

Business rates are a tax charged on most non-domestic properties, including pubs, bars, restaurants, hotels and other hospitality businesses. The amount businesses pay is largely based on their property's rateable value, which is assessed by the Valuation Office Agency (VOA). Business rates help fund local services in a similar way to council tax for residential properties.

Currently, pubs are often valued using a method known as Fair Maintainable Turnover (FMT), which estimates the level of trade a reasonably efficient operator could achieve at the property. That turnover figure can then play a key role in determining the rateable value.

The challenge is that turnover is only one part of the story.

Why Turnover Doesn't Equal Profit

Many pub operators have seen sales recover since the Covid pandemic. However, rising turnover has often been accompanied by rising costs.

A pub taking £20,000 per week may look healthy on paper, but once wages, employer National Insurance, utilities, food inflation, waste disposal, rent, insurance and supplier costs are considered, profitability can be significantly lower than headline sales figures suggest.

The current business rates valuation system can therefore create situations where two pubs with similar turnover receive similar rateable values, despite having vastly different operating costs and profitability.

For example:

• A food-led pub may have higher staff costs and tighter margins than a wet-led venue.
• Rural pubs can face higher logistics and staffing costs.
• Tied pubs operate on significantly lower margins than free houses.
• Community pubs may operate with lower profit margins while still providing valuable local services.
• Hospitality businesses investing in live music venues, entertainment or customer facilities often face additional costs not reflected in turnover figures.

In practice, the ability to generate turnover does not always translate into a greater ability to pay business rates.

Why the Government Review Matters

The Government's newly announced review will examine whether pub and hotel business rates valuations remain fit for purpose and whether the current methodology is fair and transparent. The review follows concerns raised after the latest revaluation resulted in significant increases for some hospitality properties.

Importantly, the review will consider how pubs and hotels are valued and will gather evidence from operators, landlords, brewers and industry bodies before reporting to the Treasury by March 2027.

For many within the trade, this represents an opportunity to move towards a fairer system that better reflects the realities of modern hospitality.

Existing Business Rates Relief for Pubs

There is already support available for eligible businesses.

Many small businesses can claim Small Business Rate Relief depending on their rateable value, while the Government has also introduced targeted relief for pubs, retail, hospitality and leisure properties in recent years.

For operators struggling with rising business rates, it is worth reviewing:

• Whether all available business rates relief has been claimed.
• Whether the property's rateable value is correct.
• Whether any changes arising from a business rates revaluation have been accurately applied.
• Whether relief for pubs or retail, hospitality and leisure schemes may apply.

The details vary between England and Wales and can change following government budgets and local authority guidance.

Understanding Your Rateable Value

Many operators only look at their business rates bill when it arrives. However, understanding how your property has been valued can be just as important.

The VOA regularly revalues non-domestic properties, and businesses can check their rateable value online and challenge assessments where appropriate through the VOA process.

When reviewing a valuation, operators should consider:

• Whether the property details held by the VOA are correct.
• Whether the fair maintainable turnover assumptions accurately reflect trading conditions.
• How changes in the local market may have affected trading performance.
• Whether the assessment fairly reflects the property's circumstances.

Even a relatively small adjustment to rateable value can have a significant impact on future rates liabilities.

Welcoming the Government's Review of Pub and Hotel Valuations

The hospitality sector has faced years of pressure from inflation, staffing challenges and increasing operating costs. While turnover across the sector may have grown, profitability has often told a very different story.

That is why HLWA welcomes the Government's review of pub and hotel valuations.

A business rates system that recognises not just what a pub sells, but what it costs to operate, would better reflect the reality facing the licensed trade today.

As BII Accredited Advisors, we understand how pubs really work. From wet and dry sales analysis to forecasting cash flow and assessing the impact of rising business rates, we help operators make informed commercial decisions based on profit, not just turnover.

If you're concerned about your business rates bill, rateable value, or how future changes could affect your pub, hotel or hospitality business, speak to the HLWA team today.