Call for legal loopholes against business rate debt to be closed

Local authorities are being forced to write off millions of pounds in unpaid business rates due to loopholes in licensing and business laws, according to the Local Government Association.

Under current licensing laws, councils cannot refuse or suspend a premise’s licence for outstanding business rate debts but the LGA is calling for new powers to change that. It’s proposing to allow councils to suspend the licenses of businesses that “willfully or persistently” fail to pay their business rates, only reinstating them once the business rate debt has begun to be paid off.

LGA spokesman Simon Blackburn said some businesses, including council-licensed pubs, clubs and off licences are deliberately avoiding paying their rates, knowing they can continue to operate without fear of being stripped of their licence.

The LGA also reports that many cases of companies which owe money are choosing to go bankrupt, then starting up a second “phoenix company” with the same directors, but without any debt obligation.

Currently the councils are powerless to stop vast sums of unrecoverable money from building up or take action if a business closes and reopens under a different name. They now propose a change in the law to stop debts being written off so easily and phoenix companies being created.

They want to see the loophole closed off with directors of bankrupt companies who start up a new business to pay their old company’s business rate debts.

It’s an interesting concept and would undoubtedly allow for better LA financial planning when business rates are devolved in 2020. However, it would require a fundamental change to our current bankruptcy laws, something that I don’t see happening quickly or easily when so much of the Government’s energy is going to be channeled towards Brexit, NHS and many more pressing tasks in 2017 and beyond.

The licensing element, however, is a different proposition and I will be interested to see if this idea gains any traction at a regional or national level.

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Do what the Spanish Government does, place the debt on the property and when the debt gets to
a certain level, apply to the court to take possession of the said property. The debt always stays
with the property even if a new owner takes over. All debt on a property should be registered with
the deeds.

By Alex Lumsden