Avoiding Business Rates: how the Government proposes deterring potential evaders

This article is co-authored by Chong Goh, Paralegal, Real Estate Disputes

Government Consultation on Business Rates avoidance

£250million in business rates income was lost in 2020, according to local authorities (LA). This figure has been instrumental in persuading the Government to examine how business rates are avoided and evaded and to ensure legislation provides a suitable deterrent.

As part of the 2023 Spring Budget, the Government launched a Consultation (which closed on 28 September) into Business Rates Avoidance and Evasion. The Consultation sought to identify ways in which to close loopholes and stop the exploitation of the current system.

What is ‘Empty Property Relief’?

Empty Property Relief is one of the most commonly used categories of relief for business rates and can grant relief for three or six months, depending upon industry sector. The current system requires premises to have been occupied for at least six weeks before being ‘vacant’.

New Government proposals under consideration

• Increasing the six-week occupancy period prior to vacancy

Increasing the current stipulated occupancy period prior to vacancy would prevent businesses from superficially occupying premises for six weeks in order to claim business rates relief.  The 2020 Business Rates Review pointed to businesses using premises for storage only, as a way to meet the occupancy requirement. An increase in the occupancy requirement from six weeks to three months has been proposed.

• Limiting the number of times, a property can benefit from Empty Property Relief in a certain period of time

As an alternative to the six-week minimum occupancy requirement, a single rent free period of relief granted for either three or six months within a certain period was suggested. Business rates would be payable in full for the remainder of the period once the single rent free period expires.

• Defining ‘Occupation’

There is currently no statutory definition of ‘occupation’. This currently allows businesses to use premises for storage only, rather than ‘occupying’ the premises in the true sense of the word and obtain Empty Property Relief. Other proposals include stating a property would need to use a certain percentage of the floor space in order for it to be recognised as being ‘occupied’; or adding further conditions to the Non-Domestic Rating (Unoccupied Property) (England) Regulations.

• Giving local authorities more powers and discretion to grant Empty Property Relief

In place of a set of criteria for Empty Property Relief, it is proposed local authorities be funded under Section 47 of the Local Government Finance Act (LGFA 1988) to enable Local Authorities to award Empty Property Relief to businesses using their own discretion.

• Amending or removing the Charity/Community or Amateur Sports Club (CASC) exemption

A further area the Government Consultation considered is relief from business rates for Charities and Community or Amateur Sports Clubs if the property is used for charitable purposes. This form of relief creates a loophole for the subsequent occupier, which it is said has a history of being exploited. The ‘next in use’ exemption can be claimed, but should the next occupier not be a charity or CASC, the Government is currently unable to claim backdated rates. Another concern is owners may mislead charities into occupying unsuitable properties or lease a property to charities whose sole purpose is as a vehicle to grant the owners relief from rates. The Government is considering removing the ‘next in use’ part or even the whole exemption.

Key takeaways from the Business Rates Avoidance and Evasion Consultation

The Government Consultation highlighted other methods of avoiding business rates such as providing false information to access relief from rates. It also investigated whether local authorities’ powers under LGFA 1988 and the Fraud Act 2006, are sufficient to tackle offenders. Currently, they are only able to fine or prosecute fraudulent applications for Small Business Rate Relief and Retail, Hospitality and Leisure reliefs.

Measures were discussed to ensure the sharing of data is improved between the local authorities, the Valuation Office Agency and HMRC. An area the Government has sought to crack down on is “Rogue Agents”, who advertise avoidance schemes or take advantage of clients by claiming relief on their behalf. A strategy has been suggested to tackle these agents.

We await the outcomes and next steps following the Consultation period and will share further information once published.

The Hamlins Real Estate Disputes team has expertise in both commercial and residential matters. We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you would like a conversation to find out how we might help you, please get in touch.