Business rates, a tax based on property rental value, are subject to periodic revaluations to maintain fairness among ratepayers. A recent consultation, initiated during the 2023 Spring Budget (Consultation), had the primary objective of investigating the underlying causes of and potential remedies for what appears to be the exploitation of the business rates system. According to estimates from the Local Government Association in 2020, around £250 million in business rates revenue is annually lost due to avoidance. The Consultation sought input on four proposals to address issues related to Empty Property Relief (EPR) and initiated a call for evidence concerning other measures to combat business rates avoidance. The Consultation closed on 28 September 2023.
EPR, which is arguably the most commonly utilised relief category, grants businesses with vacant properties a three month exemption from business rates (or six months in the case of industrial premises). There is then a six week reset period during which the property must be occupied. After that period, the exemption is available again in relation to the same property. In recent years, various schemes have pushed the boundaries of when such relief may be applicable, leading the courts to assess the validity of these approaches.
Additionally, the Consultation examined the circumstances under which Charity and Community Amateur Sports Club (CASC) relief, which provides exemptions to taxpayers that are either charities, charity trustees, or CASCs, could be applied.
Proposals Under Consideration:
- Increasing the 'Reset' Period: Proposed to deter superficial occupation, the 'reset' period may be increased from six weeks to three months.
- Limiting Rate-Free Periods: To discourage repeated minimal temporary reoccupation, properties may only benefit from a single rate-free period within a given time frame.
- Defining Occupation: Additional conditions for proper occupation may be set to prevent rate-free periods without 'real' occupation.
- Local Authority Discretion: Instead of set rules, local authorities may have discretion in awarding empty rates relief for properties unoccupied for three or six months.
- Charity/CASC Exemption Changes: The government is considering removing the 'next in use' exemption or the exemption altogether due to potential abuse
Actionable Steps: To prepare for changes in business rates, here are some suggestions of what you can do:
- Stay Informed: Keep a close eye on developments in business rates regulations and the Government's response to the Consultation.
- Communication: Proactively engage with your legal advisers. Discuss how you may be able to mitigate your position and adapt to forthcoming changes.
- Anticipate Challenges: Recognise that local authorities and landlords may face tensions over liability for business rates. Prepare for potential conflicts and explore solutions.