£500m rates rebate windfall for supermarkets

UK supermarkets are in line for £500m in tax refunds, after the Supreme Court ruled in their favour at the conclusion of a lengthy dispute with the Valuation Office Agency (VOA) over business rates payments on ATMs

In 2013 the VOA decided that supermarket cash machines located inside and outside of stores should be assessed for business rates on top of normal store rates, and issued bills backdated to 2010. 

Retailers strongly opposed the decision, which has been the subject of a string of legal challenges, resulting in a Supreme Court [Cardtronics UK Ltd and others v Sykes and others (Valuation Officers) [2020] UKSC 21].

The Supreme Court judges said the appeal turned on two main issues. The first was whether the sites of the ATMs should be identified as separate hereditaments from the stores or shops, and if so, secondly, who was in rateable occupation of these hereditaments.

Previously, the VOA had decided that in each case the sites of the ATMs were in separate rateable occupation.

The Upper Tribunal (Lands Chamber) upheld that decision in respect of all the ‘external’ machines, or ‘hole in the wall’ cash dispensers, which are outside the store and available 24 hours per day, but not in the case of the ‘internal’ machines which only operate while the store is open. The Court of Appeal held that none of the machines, external or internal, were separately rateable.

In its final ruling, the Supreme Court said the Upper Tribunal was entitled to find that there should be no difficulty in defining the boundaries of fixed ATMs so as to satisfy the geographical test for self-containment

The Upper Tribunal held that the retailers' retained occupation of the ATM sites but had conferred on the banks rights which substantially restricted the retailers’ use of those sites. This was because the presence of the ATMs furthered the retailers’ general business purposes and the operation of the ATMs provides the retailers with an income.

Both the parties derived a direct benefit from the use of the sites for the same purpose and shared the economic fruits of the activity for which the space was used. The Supreme Court said this is sufficient to support the conclusion that the internal ATMs remained in the occupation of the retailers.

Finally, the Supreme Court stated: ‘External ATMs are to be treated the same as internal ones. That an external ATMs is available to a wider marker at all times, and is physically separated from the other facilities in the stores, does not detract from the Upper Tribunal’s finding that the retailers remained in occupation of the ATMs, nor that they were any less a part of the retailers’ businesses. ‘The difference is no greater than the difference between an internal or external ATM in a bank building.

‘Thus, the external ATMs remained in the rateable occupation of the retailers.’

As a result, the Supreme Court found in favour of the supermarkets’ arguments, ruling that ATMs in stores should not attract a separate valuation for business rates purposes.

While the appeal was brought by payment company Cardtronics, Sainsburys, Tesco and the Co-operative Group, these were designated as lead appeals. Appeals relating to some 10,000 other sites (amounting to some 34,000 appeals in all) have been stayed pending the final decision in these cases.

John Webber, head of business rates at global real estate advisers Colliers International, said: ‘This is a massive relief, not only for the supermarkets involved, but also for the consumers who need access to these machines.

‘Many would have suffered if the judgement went the other way and retailers ripped the ATMs out of their stores, to save extra rates bills, denying many in the local community free access to cash.’

Colliers estimates each ATM site would have attracted an average rates liability of around £4000 and calculates the refunds to the supermarkets should be in the region of £496m.

While the Supreme Court’s ruling will be welcomed by retailers, many of whom are struggling during the current pandemic and have taken a business rates holiday under the government’s coronavirus support schemes, it will be challenging for local authorities who will now need to issue rebates. 

The VOA said: ‘We are considering the implication of the Supreme Court decision and will update our practice and guidance accordingly.’

Cardtronics UK Ltd and others v Sykes and others (Valuation Officers) [2020] UKSC 21

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