Another crackdown on business rates’ avoidance activity

The Welsh Government is taking a lead in challenging the avoidance of non-domestic rates.

The politicians state they are committed to trying to improve this particular revenue source for local businesses which are delivering local services, as well as make the rates burden more equitable amongst ratepayers.

Currently, there are approximately 110,000 non-domestic properties in Wales delivering more than £1 billion a year in rates. Non-domestic rates also pay in part for local government and police services.

A range of relief schemes provide approximately £210 million of support to specific types of property or occupier, with many other properties being exempt from paying rates. These include small business rates relief, charitable relief, exemptions for unoccupied properties and agricultural holdings and most recently, high street rates relief and transitional relief to help ratepayers following the 2017 revaluation.

Whilst the Welsh Government isn’t able to identify the actual amount of local revenue lost to avoidance activity, it believes 1-2% of the total yield – £10 million to £20 million – is lost annually. Some Welsh authorities say this estimate doesn’t reflect the full scale of avoidance and is just the ‘tip of the iceberg’.

The most common avoidance methods reported were:

• avoidance of empty property rates through repeated periods of artificial or contrived short-term occupation;
• failure to notify authorities of a change in circumstance that would affect their rates liability (such as a change in ownership, occupation, use of property, physical changes which increase or decrease the rateable value);
• abuse of the relief given to charities;

• ‘phoenix trading’ using shell or subsidiary companies and the avoidance of rates through the use of insolvency exemptions.

To a lesser extent there were cases reported of:
• disingenuous use of the exemption for fish farming (including snail farming); and

• avoidance of rates by purposely making a property unoccupiable.

The Welsh Government now intends to introduce legislation to tackle rates’ avoidance and they are launching a consultation process.

For those wishing to contribute to the process the consultation documentation can be found at https://beta.gov.wales/sites/default/files/consultations/2018-04/180403-tackling-non-domestic-rates.pdf

Of course, Dunlop Heywood will be making representations as we did when a similar exercise was undertaken in England.