The Government Consultation into Business Rates Avoidance and Evasion closed on 28 September.
The Consultation, which was launched in the 2023 Spring Budget, aimed to explore the causes of and solutions to the perceived exploitation of the business rates system. The Local Government Association estimated in 2020 that £250m in business rates income is lost to avoidance each year. The Consultation sought input on four proposals for clamping down on Empty Property Relief (EPR) and establishing a call for evidence on other business rates avoidance measures.
Empty Property Relief (EPR) is arguably the most widely used category of relief. It entitles the ratepayer of a vacant hereditament to either three months’ relief from business rates (or six months in the case of industrial premises). Currently, the only qualification for that relief is that the hereditament must have been occupied for at least six weeks before it became vacant. Over the last few years, the Courts have been asked to consider the validity of a number of schemes that seek to push the boundaries of when this form of relief might be available.
The Consultation also considered when charity/Community Amateur Sports Club (CASC) relief, which exempts a taxpayer which is a charity, a trustee of a charity, or a Community Amateur Sports Club (CASC), might apply.
What proposals are the government considering?
The Consultation identified four proposals around modifying the entitlement to EPR and a further proposal regarding charity / CASC relief. These are outlined below.
1. Increasing the 6 weeks ‘reset’ period
The 2020 Business Rates Review suggested that businesses were claiming sequential rate free periods under EPR through superficial occupation, such as using the premises for storage only. One proposed reform is to increase the reset period from 6 weeks to three months, which may make contrived occupation arrangements less attractive.
2. Limiting the number of times a property can benefit from EPR in a given period
Under this proposal, instead of having a “reset period”, a hereditament would only be able to benefit from a single rate free period of up to 3 or 6 months within a given period. Rates would be payable in full for the rest of the time, regardless of whether the property was occupied or not. This would be intended to discourage repeated minimal temporary reoccupation, as the ratepayer would not benefit from any further EPR.
3. Defining occupation
The Government asserts that the lack of a current statutory definition of ‘occupation’ enables ratepayers to benefit from further rate free periods without ‘real’ occupation, by, for example, using premises for minimal storage. A further proposal would involve amending the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 to set out additional conditions of occupation to make sure properties are properly occupied. For example, it could state that for a property to be ‘occupied’, at least 50% of floor space must be used.
4. Giving local authorities discretion as to when to grant empty rates relief
Instead of having set rules for when EPR can be obtained, one proposal is to instead fund local authorities to use their discretion under s47 Local Government Finance Act (LGFA 1988) to award any EPR for properties unoccupied for 3 or 6 months. There was no mention of whether Local Authorities might be given guidance on how to exercise that discretion.
5. Removing or amending the charity/CASC exemption
Business Rates legislation currently provides that where the ratepayer is a charity and it “appears” that, when next in use, the property will be wholly or mainly used for charitable purposes, by that charity or another charity, no rates are due.
The charity/CASC exemption has been highlighted as particularly vulnerable to abuse. In particular, if the ‘next in use’ exemption is claimed, but then the next occupier is not actually a charity or CASC, there is currently no recourse to allow backdated rates to be collected. There are also concerns about owners misleading legitimate charities into occupying unsuitable properties at low costs, or owners leasing properties to artificial charities which are used as vehicles to secure exemption. For these reasons, the government has proposed removing the ‘next in use’ part of the exemption or removing the exemption altogether.
Wider aims of the Consultation
In addition to the proposals set out above, the Government used the Consultation Paper to include a call for evidence about the prevalence and range of other avoidance methods, such as the provision of false information when applying for reliefs or exemptions. They have also sought opinions as to whether the billing authorities’ current powers under the LGFA 1988 and the Fraud Act 2006 are sufficient to tackle current evasions. At the moment, billing authorities can fine or prosecute fraudulent applications for relief schemes such as Small Business Rate Relief and Retail, Hospitality and Leisure reliefs. There are also measures to improve the data provided to the billing authorities by committing the VOA and HMRC to sharing their information regarding business property occupation, rates and reliefs claimed.
The Consultation Paper also devoted a section to “Rogue Agents” who openly advertise avoidance schemes or take advantage of their clients by claiming non-compliant rate reliefs on their behalf. The paper sought examples of poor rating agent behaviour and examples of how this could be tacked.
We will continue to monitor the Government response to the Consultation and report further as developments emerge.
Article co-authored by Grace Owen-Ellis