The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill , House of Commons, 16 June 2021

It will be important that this funding is kept under review to ensure it is enough to meet demand and that guidance is published as soon as possible so that councils can set up schemes and ensure the new funding reaches businesses. Any new burdens due to administrative or IT costs should also covered by the Government.


Key messages

  • The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill legislates to ensure that COVID-19 cannot be taken as a cause of material changes of circumstances for business rates and makes provision in connection with the disqualification of directors of companies that are dissolved without becoming insolvent. We welcome the provisions in in the Bill.
  • Not all businesses affected by COVID-19 are covered by the reliefs previously announced and may struggle to pay business rates amid the ongoing economic uncertainty. It is therefore pleasing the Government will provide councils with £1.5 billion to offer grant relief to businesses which have been hard hit and seen their circumstances change due to the effects of the pandemic.
  • It will be important that this funding is kept under review to ensure it is enough to meet demand and that guidance is published as soon as possible so that councils can set up schemes and ensure the new funding reaches businesses. Any new burdens due to administrative or IT costs should also covered by the Government.
  • The second part of the Bill regarding the disqualification of directors is may make it harder to set up ‘phoenix companies’ (a business that has been purchased out of a formal insolvency process such as administration or liquidation, often by the existing directors) in order to avoid business rates.
  • Alongside council tax, business rates represent the largest source of income for councils. Retained business rates contribute around a quarter of local authority core spending power. Business rates avoidance can therefore have a significant impact on council income and this legislation has the potential to reduce this practice.
  • We continue to work closely with government and partner organisations as further action is needed to reduce business rates avoidance. Further to this Bill, we are recommending that the Government bring forward separate legislation in England similar to those in Wales and Scotland which tackle the issue of avoidance. Any new legislation relating to business rates avoidance should come into effect with the next revaluation, which will happen in 2023.
  • We look forward to working with the Government and parliamentarians so the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill is passed as soon as possible, and councils can get the reliefs in place.

Part 1 of the Bill: Rating (Coronavirus)

Not all businesses affected by the COVID-19 pandemic are covered by the reliefs announced up to this point and may struggle to pay business rates.

We are pleased the Government will provide councils with funding to offer grant relief to businesses which have been hard hit and seen their circumstances change due to the effects of the pandemic. Confirmation that this relief will be an alternative to any adjustments to rateable values as a result of the change in circumstances also provides much-needed certainty to councils.

It will be important that this funding is kept under review to ensure it is sufficient to meet demand and that guidance is published as soon as possible so that councils can set up schemes and ensure the new funding reaches businesses as soon as possible. It will also be important to ensure that, in line with normal procedure, any new burdens due to administrative or IT costs are covered by the Government.

The LGA understands that the new relief will be given as a discretionary relief. It should be noted that for it to apply to any period within the financial year 2020/21 any relief should have been decided before 30 September 2021.

To ensure the guidance is workable, it will be important for the Government to work with local authorities and the LGA. We look forward to Parliament passing the Bill as soon as possible so councils can get the relief in place.

It will also be important to ensure that, in line with normal procedure, any new burdens due to administrative or IT costs are covered by the Government.

Part 2 of the Bill: Directors Disqualification (Dissolved Companies)

The second part of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill is welcome as the provisions set out may make it harder to set up “phoenix companies” (a business that has been purchased out of a formal insolvency process such as administration or liquidation, often by the existing directors) in order to avoid business rates.

Alongside council tax, business rates represent the largest source of income for councils. Retained business rates contribute around a quarter of local authority core spending power. Business rates avoidance can therefore have a significant impact on council income.

Based on a survey the LGA carried in 2019, we estimate the overall scale of avoidance in England is £250 million, which equates to one per cent of the overall total business rates payable. The survey we conducted in 2014 revealed the same percentage, showing the rate of avoidance has not improved.

Although the Government has not brought forward any proposals in respect to England, packages of measures are being implemented to tackle the issue of avoidance in both Wales and Scotland. Local Government and Elections (Wales) Act 2021 and Domestic Rating (Unoccupied Property) (Wales) (Amendment) Regulations 2021 and in Scotland with the Non-Domestic Rates (Scotland) Act 2020.

We continue to work closely with the Government and partner organisations as further action is needed to reduce business rates avoidance. Further to this Bill, we are recommending that the Government bring forward separate legislation in England similar to those in Wales and Scotland which tackle the issue of avoidance.  Any new legislation relating to business rates avoidance should come into effect with the next revaluation, which will happen in 2023.

Contact

Laura Johnson, Public Affairs and Campaigns Adviser

laura.johnson@local.gov.uk