Regulaton of business rates reduction services, House of Commons, 26 May 2021

• 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.

• In 2019, the LGA carried out a survey of business rates avoidance. In 2020, we published a report detailing the findings.

• The findings estimated that 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. In Wales with the 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.

• On 14 May 2021, two councils won a case in the Supreme Court on business rates. The ruling is significant for councils and has the potential to close off one of the mechanisms widely used for business rates avoidance.

• Councils want to work with the Government to bring forward measures in England similar to those in Wales and Scotland, to come into effect with the next revaluation, which will happen in 2023.

In 2019, the LGA carried out a survey of business rates avoidance. In 2020, we published a report detailing the findings. The report found that on average, respondents estimated that the total amount of business rates lost to avoidance in their local authority area in 2017/18 was £798,000. Using this average, it is estimated that the overall scale of avoidance in England is £250 million, which equates to one per cent of the overall total business rates payable. This is the same percentage as found by the 2014 survey. It is therefore clear that the level of business rates avoidance has not changed, compared with a similar survey conducted in 2014.

The method of avoidance most commonly identified in the survey was repeated short-term periods of occupation, which had the highest average loss at £396,000. Vacant properties being leased to a charity with proposals for the next use to be wholly or mainly used for charitable purposes was the second most commonly identified method and the average amount lost for this was £153,000. This was also the second most commonly used method in the 2014 survey.

The practice of ratepayers using third party/ rates mitigation companies to facilitate arrangements in return for a percentage of the rates saved, for example, marketed avoidance schemes, was widespread or very widespread in the opinion of almost half of respondents.

Although the Government has not brought forward any proposals in respect to England, in both Wales and Scotland packages of measures are being implemented.

In Wales the measures can be found in the Local Government and Elections (Wales) Act 2021 (part 8) and the Non-Domestic Rating (Unoccupied Property) (Wales) (Amendment) Regulations 2021

These measures include:

• A legal obligation on ratepayers to notify their local authority of a change in circumstances which would affect their rates bills.
• A new legal power for local authorities to request information from ratepayers and third parties to aid authorities in discharging the billing and collection function.
• A new legal power for local authorities to enter and inspect non-domestic properties (hereditaments) to verify information relevant to the billing function.
• Changes to the arrangements for empty property relief. This will include lengthening the period of temporary occupation, which leads to repeated cycles of relief, from 42 days to six months (this will come into effect in April 2022); removing zero-rating on empty properties that, when next in use, it appears they may be used for a charitable purpose; and providing local authorities with local discretion to grant zero rating in genuine cases where a charity needs to own or lease an empty building and not make use of it.
• Working with local authorities to publish a list of ratepayers in receipt of rates relief, subject to a list complying with the General Data Protection Regulation.

These measures are similar to what we called for in our 2020 summary of survey findings and recommendations report.

In Scotland, the Non-Domestic Rates (Scotland) Act 2020 allows Scottish ministers to make anti-avoidance regulations with a view to preventing or minimising advantages arising from non-domestic rates avoidance arrangements that are artificial.

On 14 May, two councils won a case in the Supreme Court on business rates. The test case brought by Rossendale Borough Council and Wigan Council considered whether they had reasonable grounds for claiming rates on empty properties and were representative of 55 similar cases in which the value of unpaid rates varied from a few thousand to millions of pounds.

The rates avoidance scheme run involved granting a short lease of the unoccupied property to a special purpose vehicle (SPV), such that the SPV became the ‘owner’ and liable to non-domestic rates liability rather than the respondent company. The SPV was then dissolved or put into liquidation to escape rates liability. Rossendale and Wigan councils rightly claimed that they were entitled to the unpaid rates, either because the lease to the SPV was ineffective to make the SPV the 'owner' of the unoccupied property under the Local Government Finance Act 1988, or because the SPV should be ignored.

The ruling is significant for councils, and has the potential to close off one of the mechanisms widely used for business rates avoidance.