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Business rate reforms: Scotland shows how it’s done

Scotland recently gave us a kicking at the Rugby Six Nations and now it seems they are also showing us how it’s done when it comes to business rate reforms.

The Barclay review published back in August set out 30 recommendations for changes to the business rates system in Scotland and the Scottish Government has now set out its response in a statement from Derek Mackay, The Cabinet Secretary for Finance and the Constitution.

Mackay has confirmed the adoption of four of the report’s major recommendations, starting with Rating revaluations in Scotland taking place every three years from 2022 onwards. Those revaluations will be based on a date one year prior to the revaluation coming into force, which makes absolute sense and gives businesses a realistic revaluation using more up to date figures.

Scottish day nurseries also had some good news. As from 1 April 2018, they will benefit from 100% relief from business rates. Designed to reduce the cost of childcare for working parents.

Also, from 1 April 2018, the “fresh start” relief, available for vacant properties that come back into use, will be expanded. The relief will increase from 50% to 100% for the first year and will be available for properties that have been vacant for six months or more – not the current one year or more, qualifying date. This relief will be available for all types of property, including industrial properties.

Lastly, the Cabinet Secretary confirmed a review of the rating of plant and machinery, focusing particularly on the renewables sector and on plant and machinery required for regulatory compliance.

In his address the Cabinet Secretary said his intention was to implement the “vast majority” of the report’s other recommendations, subject to any legal or regulatory considerations, the budget process and Parliamentary approval.

The implementation of these other recommendations will be subject to consultation with any final decision to be made before the end of this year.

Other key points from the remaining recommendations include:

  • A proposal to exempt new build properties, and improvements to existing properties, from business rates for one year from the date of completion; the so-called “business accelerator”.  The Cabinet Secretary intends to exempt all new-build properties from rates until they are occupied for the first time, with the one-year “business accelerator” exemption then applying for the first year of occupation. This is a significant reform and could prompt the English Government to follow suit?
  • Scottish Government intends to reduce the business rates supplement paid by large properties from 2.6 pence to 1.3 pence, to align with the supplement in England, but this will only happen “should it become affordable” so don’t hold your breath
  • There will be changes to the provision of information to ratepayers, and a standardised billing process. Assessors are tasked with producing an action plan by the end of this month
  • Two of the report’s recommendations have been specifically rejected. Farms will not be placed on the Valuation Roll; they will continue to be exempt from rates, and large-scale food processing plants on agricultural land will not become subject to business rates

That’s the good news for rate payers but there will be some pain too:

  • Civil penalties will be introduced for ratepayers who fail to supply information or supply inaccurate information. (see my last Resources article that looked at this issue in England). Tribunals will be empowered to increase assessments on appeal, as well as to reduce them. A “general anti-avoidance rule”, of the type that exists in other tax regimes, will be introduced for business rates in Scotland

The Barclay review had a remit to be “revenue neutral” but virtually everything detailed above suggests the monetary pendulum may need to swing back towards the Government, so we could see other proposals in the future attempting to wrestle back some of the relief costs that have been announced so far.

Regardless of the final details, on the face of it the Scottish Parliament has managed to achieve sensible business rate reform in a fraction of the time it is taking their English counterparts who, 5 years on from their reform announcement, have very little to show for it.

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There are some good ideas here. The IRRV had considerable input, both from Lonfon and, very largely, from its Scottish Association.

Things are happening in Whitehall; but the period of gestation is one which most would believe to be far too long

More reforms would be helpful, and hopefully will encourage Westminstery

By Peter Scrafton

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