Non-domestic business rates is about to go through one of its most significant changes in the last 20 years.
Outlining the coalition Government’s most significant reforms to Local Government finance to date, Communities Secretary Eric Pickles has announced that Local Councils will be able to retain some business rate income and borrow against future growth from 2013/14 onwards.
At present, the Government yields £26bn per annum from business rates in England, Wales and Scotland. Councils will still bill and collect business rates but instead of contributing all the income into a central Government pool and receiving a formula calculated amount, Council’s will now retain some amount locally.
Legislation for the changes will be set out later this year but ministers have said there would be no change to the way businesses pay the tax, which businesses are eligible for any discounts or the way business rates are nationally set.
Key details of how the proposed “localisation” of business rates will work have now followed whereby 50% of rates collected will remain under direct Local Authority control. In deciding on a 50/50 share, the Government has gone further than many business advisers recommended but at the same time ensuring that Councils will not have full authority to tax and spend 100% at will.
For some Councils a 50% share is not enough as the current local rate collection and redistribution by central Government certainly weakened local accountability and gave Councils no reason to promote business growth as they received no direct benefit.
From next year, Councils will be able to exercise control over a substantial proportion of locally derived tax revenues and the importance of Councils maintaining rate income will be of primary concern the closer we get to April 2013. However, in order for Council’s to maintain long term funding levels, they will need to accept that local businesses must be supported and encouraged to succeed and grow, which for many Councils will require a change in attitude.
Local Councils will have the challenge of maximising their rate income to create opportunity and to secure “growth” which can then be retained locally. The cynic may argue that this could result in large scale out of town developments which will increase income for Local Councils.
Councils are also likely to adopt a more aggressive stance when defending rate income when considering Empty Property Relief and other legitimate applications to reduce client’s rate liability.
The Empty Property Rate legislation of 2007 has detrimentally affected the commercial property market, depressed the level of affordable rents, and irreparably damaged businesses during which time we have had a double dip recession.
As businesses continue to struggle in the face of high business rates, there are numerous legitimate avenues to reduce liability other than submitting the requisite appeal to the Valuation Officer.
A recent case in Sunderland has upheld the temporary use and occupation of premises for “blue tooth marketing and advertising services” so that Empty Property Relief can be granted. Another landmark High Court case in Coventry determined that temporary use and storage of only 0.2% floor space within a vacant 140,000 sq.ft. warehouse was enough to trigger 6 months Empty Property Relief once vacated.
The above cases reaffirm the legitimacy of “intermittent occupation” by ratepayers to reduce their rate liability by up to 80%.
