As you may be aware, the Government has now published its consultation paper on “Business Rates Avoidance and Evasion”.
Whilst the paper covers three areas, the main focus is to curb the avoidance of empty rate payments through the adoption of strategies such as the intermittent occupation scheme (or Makro Scheme), a well used and lawful strategy which allows ratepayers to maximise empty rate relief.
Below is what we hope is a helpful summary of these proposed changes and how they might effect owners of property. Whilst we don’t have a time frame for implementation or confirmation of the new rules, it is clear that we are one step closer to some form of change and we would urge all our clients to take advantage of the current empty rate relief options whilst they can.
Summary of the Business Rates Avoidance and Evasion consultation paper
At present, a property is entitled to three months statutory empty rate relief (six months in the case of industrial and storage properties) once it becomes vacant. It is then open to the ratepayer to go into occupation of a small part of that property for a short statutory period of six weeks and one day following which a further period of relief from the payment of rates is allowed. If the strategy is employed efficiently it will reduce the annual liability by approximately 65% (78% in the case of industrial or warehouse properties).
The Government is seeking to close down the loophole and is consulting on the following reforms:-
1) That the current six week occupation requirement is increased to either three or six months.
Illustration of potential reduction in savings in any 12 month period with changes being tabled
|Current – 6 weeks 1 day
2) They are considering the introduction of a limit on the number of times empty property rate relief could be claimed in a given period. [The consultation does not specify the number of times nor the period that it is considering].
3) The Government is considering additional conditions to define the meaning of rateable occupation purely for the purposes of determining whether a property should benefit from a further period of rate relief. It is suggesting that to qualify, more than 50% of the floor area must be occupied to constitute occupation. Currently, only a very small part of the property would need to be occupied to satisfy this provision.
4) The Government has opened up the debate to consider whether empty rate relief should be at the discretion of Local Authorities.
In addition, the Government is consulting on how to limit reliefs being granted to charities, many of which are set up with the sole intention of avoiding empty rates. It is also seeking to clamp down on the misuse of a provision that allows an exemption where the Local Authority believes a property will be occupied by a registered charity or community and sports club when it is next used.
Finally, the consultation papers seeks further information on evasion strategies and rogue advisors. It suggests that rating advisors should adhere to a standard to be developed by the Valuation Office Agency which would be similar to the existing HMRC tax agent regime.