Rating appeals are not avoidance tactics; don’t blame the ratepayer, Salford
There was an interesting story out last week over Salford Council “losing” £7 million through “business rates’ avoidance schemes”. The Council says this is due to what it calls the “increasing use of business rates avoidance tactics”.
With the Council allowed to keep 50% of the business rates it collects, it means a potential £3.5 million direct loss to the city. The Council, somewhat defensively, says the loss looks likely to be passed on in cuts to services for the community.
The article however seems to have completely missed the point that businesses have a perfectly legitimate right to challenge rateable values and business rates that are unfair or miscalculated.
As I said in my previous article, it is hard for local authorities to financially plan ahead when there are so many appeals outstanding against rateable values, with millions set to be clawed back over the coming months.
However, that doesn’t mean businesses are doing anything illegal or underhand in challenging those rates that have been set and paid in the past. For example, it is perfectly right that a business which has seen profits slump as a result of months of road works outside its front door should be able to appeal and receive a rebate. Would anyone oppose the business rate rebate being talked about for businesses hit by recent floods?
If a business, or for that matter the Council itself, lodges and wins an appeal against the level of a rateable value, it means that it has overpaid in the past and is entitled to that money back – it never belonged to Salford or any other council in the first place and shouldn’t be classed as “business rates’ avoidance”.
When we look at what the people call “Business Rates avoidance” or to put it another way, businesses managing their affairs to minimise their exposure to tax liability, there is plenty of judicial comment that such actions are perfectly legitimate.
It is easy to see why various legitimate schemes have proliferated over recent years, with some Local Authorities adopting similar methods in respect of their own liabilities. A well-documented result of the postponement of the 2015 Rating Revaluation means that rateable values are based upon pre-recession values so there is a perceived and actual unfairness in the fact that the tax base has not been rebalanced. Furthermore the source of the problem, the Rating (Empty Properties) Act 2007, was conceived during a period of unprecedented growth and prosperity.
Confounding an already difficult area is the Local Government Finance Act 2012 which has made it difficult for Local Authorities to grant reliefs, where they must fund 50% of such schemes, in a period of reduced funding and cuts. In such an environment, survival for many revolves around cost control, leading ratepayers to try to mitigate the cost of business rates.
According to the Salford Star we now have a situation where the Council has the unpleasant task of declaring a deficit of £7.1 million in its business rates collection and they need to point the finger somewhere.
You can put it down to bad luck or bad financial planning but a successful rating appeal is not and cannot be classed as a “business rate avoidance tactic” – so don’t blame the ratepayers!
We have read a lot in the media and from MPs on the subject of appealing against unfair business rates but the touchy topic has now reared its head...
In 2016, I commented on the government’s proposals to introduce discretion into the appeal process, with appeals being refused if the reduction in assessment determined was not big enough.
Chancellor Phillip Hammond announced a handful of relief schemes for those hardest hit by increases in liability resulting from the 2017 Rating Revaluation.