Business Rates Avoidance and Evasion Consultation

• The Local Government Association (LGA) is here to support, promote and improve local government. We will fight local government's corner and support councils through challenging times by making the case for greater devolution, helping councils tackle their challenges and assisting them to deliver better value for money services.
• This response has been agreed by the lead members of the LGA Economy and Resources Board.
• We welcome this consultation and the Government’s commitment to take measures to tackle business rates avoidance and evasion.
• The LGA has long been concerned about business rates avoidance and we have carried out surveys to determine its extent and the main methods used. The last survey was carried out in 2019.  We estimated that £250 million, around 1 per cent of annual business rates revenue, was lost to business rates avoidance.

Question 1: Would increasing the required duration of occupation during the ‘reset period’ from six weeks to three or six months be effective in reducing avoidance through empty property rates?

The LGA would support an extension to six months; this has been done in Wales and it could be done without primary legislation.  In the LGA survey quoted above this was the most frequent cause of business rates avoidance through contrived occupation.

Question 2: What, if any, potential issues could arise from requiring occupation for three or six months during the ‘reset period’?

Billing authorities will still have to check for compliance and a longer period is no guarantee against contrived occupation.

Question 3: Would introducing a limit on the number of times EPR could be claimed in a given time period be effective in reducing avoidance?

Yes, we would support this at it would aim to deter businesses claiming sequential relief through minimal occupation such as storing boxes and it would aim to make such activity less financially rewarding.

Question 4: What, if any, potential issues could arise from limiting the number of times properties can benefit from EPR within a given period?

As the limit would relate to the property and not the occupier, a limit could mean that the new occupier could be prevented from claiming EPR for a legitimate reason such as refurbishment; the billing authority could be given discretion over such cases.

Question 5: What are your views on adding additional conditions to the meaning of occupation for the purposes of determining whether a property should benefit from a further rate free period?

We would support this, for example a condition on whether it appears to the authority that the property is ‘wholly or mainly’ occupied would be a statutory way of preventing minimal occupation for the purpose of qualifying for a period of empty rates relief. Another would be that the occupier should be able to demonstrate a genuine business need/benefit.

Question 6: How could the additional occupation conditions be effectively defined to reduce avoidance?

One idea would be to allow the billing authority discretion if they have reasonable grounds to suspect that the ratepayer is using contrived, artificial arrangements that serve little or no purpose other than to reduce business rates liability.

Question 7: What are your views on reforming the current arrangements for empty property rates relief and replacing them with a local, discretionary scheme?

In principle we would support this, but we are conscious that the government partially supports mandatory reliefs and would not want to see billing authorities lose resources due to reliefs being made discretionary rather than mandatory.  As the question says, there are many examples of local authorities using their s.47 discretionary relief powers which are funded by the Government, and these could be used as a model.

Question 8: Are there any other additional criteria which, in your view, should be met for a property to qualify for EPR?

We have no further suggestions and would refer the Government to replies from billing authorities.

Question 9: Would removing the ‘next in use’ exemption, in your view, be effective in tackling avoidance of EPR?

Yes, the ‘next in use’ exemption also figured in the LGA survey. We are concerned about charities being drawn into rates avoidance arrangements.

Question 10: What issues may be caused by the removing the ‘next in use’ exemption?

Genuine charities could be adversely affected by this; this could be tackled by making the relief discretionary as suggested in question 11.

Question 11: What are your views on how the ‘next in use’ exemption may be improved to minimize the opportunities for rates avoidance, including (but not limited to) introducing additional criteria or devolving the award of the exemption to local authorities?

We would support devolving the award of exemption to billing authorities on the same conditions as in the answer to question 7 above, that authorities do not lose resources through reliefs being made discretionary rather than mandatory.

Question 12: What methods of avoidance have you encountered in the business rates system, in addition to those outlined in Chapter 1? Please include any information you have relating to the potential scale of any such activity in your answer.

The 2019 LGA survey referred to above reported the following in addition to avoidance of EPR already covered.

• Splits or mergers with the aim of minimising business rates – for example by qualifying for small business rates relief.
• Misuse of insolvency to avoid paying business rates including the use of shell companies.
• Misuse of the agricultural exemption.

To the extent that these practices involve breaking the law, they may also constitute evasion.

Question 13: Do you have any suggestions for what action could be taken to effectively mitigate against, discourage or prevent this behaviour?

In addition to making more reliefs discretionary, there could be a statutory definition of occupation.

Question 14: Are you aware of any of the forms of evasion listed above? Please include any information you have relating to the potential scale of any such activity in your answer.

As the consultation says, the key difference between avoidance and evasion is that evasion is illegal.  The LGA has been informed by billing authorities, both through the 2019 survey and anecdotally of activities that constitute evasion, particularly the misuse of insolvency and charity legislation and breaching of the limits for small business rates relief by claiming in multiple billing authorities and breaching the caps for relief eligibility, for example for the retail relief.

Question 15: Are you aware of any other examples of evasion which are not listed here? Again, please include any information you have relating to the potential scale of any such activity in your answer.

The main examples are listed in the answer to question 14 above.

Question 16: Do you have any suggestions on what further action could be taken to prevent evasion?

Question 17: Do you think billing authorities have sufficient powers to effectively combat evasion in the business rates system? If not, how do you think they should be strengthened or expanded?

Recent regulations in Wales provide for the following:

• A legal obligation on ratepayers, to notify their local authority of a change in circumstances which would affect their rates bills.
• A legal power for local authorities to request information from ratepayers and third parties, to aid authorities in discharging the billing and collection function. 

These could be introduced to work alongside the new powers to give information to the Valuation Office Agency.

Question 18: Will the new information that will be made available to billing authorities allow them to better combat business rates avoidance and evasion? What kind of compliance activity will it allow billing authorities to carry out?

Yes, as long as it available to all billing authorities, for example it could enable them to check that businesses are not breaching the limit of small business rates relief by operating in two or more billing authorities.

Question 19: Do you think there is any other information held by HMRC or the VOA which would be useful for billing authorities to have to help them to combat avoidance and evasion?

We ask the Government to consider the reply of billing authorities to this question.

Question 20: Do you have specific views on how we can best ensure effective information sharing between billing authorities and the VOA/HMRC, once DBR and the VOA duty are in place?

Fully funding local authorities for any new burdens and working closely with them to ensure that any glitches are ironed out should help.

Question 21: Are you aware of any of the “rogue” rating agent activity listed above? Please include any information you have relating to the potential scale of any such activity in your answer.  

Yes, through the 2019 survey and anecdotally.

Question 22: Are you aware of any other examples of poor rating agent behaviour which are not listed here?

The main examples of which we are aware are listed in paragraph 4.1 of the consultation.

Question 23: Do you have any suggestions for what action could be taken to mitigate effectively against, discourage or prevent this behaviour?

This can be done through mixture of discretionary powers and statutory reform including penalties as well as codes of conduct, like that for example, of the IRRV and RICS and the Rating Surveyors Association.

Mike Heiser

[email protected]