Call for action on £250m annual cost of business rates avoidance

Councils are losing some £250m a year through business rates avoidance, equivalent to 1.0% of the total of this income source.

That claim has come from the Local Government Association (LGA) in its survey of business rates avoidance, which said legislation is needed to tackle this problem in England along similar lines to those proposed in Scotland.

Only 3% of respondents felt that councils had adequate powers to tackle avoidance, while 84% disagreed.

The LGA carried out the exercise for the first time since 2014 after what it said were repeated promises of action from ministers which had never become reality.

On average, the 120 councils that responded to the survey said they had lost £798,000 each in business rates in 2017-18.

This gave the £250m figure for England and the 1% level of loss, the same as was found in a similar survey carried out in 2014.

The proportion of councils reporting business rates avoidance of more than 2% had though risen from 6% to 15%.

Repeated short-term periods of occupation was the most common method of avoidance found, and this also had the highest average loss at £396,000.

Next came vacant properties leased to a charity with the next use purported to be wholly or mainly charitable, with an average loss of £153,000.

Currently, owners of empty premises are able to avoid or delay paying rates by if they claim their properties will be used by charities in future.

Almost half of respondents thought the use of companies that facilitate business rates avoidance in return for a cut of the savings was either widespread or very widespread.

Legal action against such avoidance schemes had been taken by almost half of respondents, with most saying they picked the cases they were most likely to win.

Of those that were not taking action, more than half reported that this was because the schemes concerned were within the law.

The LGA called for councils to get new legal powers to enter and inspect non-domestic properties to verify information relevant to billing.

It noted that in Scotland the Non-Domestic Rates (Scotland) Bill 2019 (Part 4) proposes a new power for ministers to make anti-avoidance regulations to prevent or minimise advantages arising from artificial non-domestic rates avoidance arrangements.

The government, it said, should, “as a matter of urgency…bring forward a similar package of measures to apply in England.”

Respondents also supported more integrated working with Her Majesty’s Revenue & Customs, the Charity Commission and Companies House, and said reform of empty property regulations, clarification and guidance on occupation and a duty to notify billing authorities of changes in occupation should be put in place.