Government Consultation On Rates Avoidance/Evasion
HM Treasury and the Department for Levelling Up, Housing and Communities have recently announced their intention to carry out a consultation into the avoidance and evasion of business rates.
What is avoidance and evasion?
Avoidance schemes involve the manipulation of existing rules on business rates and business rates relief with a view to removing or minimising the liability to pay. It is quite possible for a ratepayer to avoid or mitigate the amount they have to pay in business rates through an effective avoidance scheme.
In Makro Properties Ltd v Nuneaton and Bedworth Borough Council [2012] EWHC 2250, HHJ Jarman QC explained,
‘It has been recognised for a considerable amount of time that ratepayers or potential ratepayers can and do organise their affairs as to avoid paying rates … the court is not a court of morals, but of law. If the outcome of this case is seen as unacceptable then it is for the legislature to determine whether further reform is needed.’
Conversely, tax evasion is the deliberate attempt to avoid paying tax through illegitimate means, such as the use of false documents, or the implementation of dishonest or sham arrangements.
What will the consultation focus on?
The consultation will:
- Consult on specific reform to Empty Property Relief.
- Gather evidence on wider avoidance and evasion practices within the business rates system.
- Gather evidence on ‘rogue’ rating agent behaviour.
Empty Property Relief
The decision in Makro Properties Ltd endorsed a business rates avoidance scheme involving manipulation of the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008.
The scheme (now commonly known as a Makro scheme) involves intermittent periods of occupation of 6 weeks or less of an otherwise empty property in order to trigger a 3-month rates exemption (for industrial property a 6-month exemption can be obtained).
The Court concluded that slight use of property with an intention to occupy amounts to rateable occupation and which would then later qualify the property for empty property relief.
The effectiveness of Makro schemes was endorsed in R (on the application of The Secretary of State for Health and Social Care on behalf of Public Health England) v Harlow District Council [2021] EWCH 909 (Admin) in which the Court decided that it did not matter if the sole motivation for occupation was the mitigation of a future rates liability.
A change to the Regulations which would extend the ‘reset’ period of occupation from 6 weeks to either 3 or 6 months is to be considered as part of the consultation. It is anticipated that such an extension would reduce the financial incentive to ratepayers to use Makro schemes and dissuade them from avoiding rates in this way.
Alternative reform, which would reduce the number of times that a property can benefit from empty property relief, is also being considered.
Wider avoidance and evasion practices
The consultation will also be used to consider other avoidance methods that are deployed by ratepayers to avoid or mitigate a liability to pay business rates and the scale of avoidance activity.
To assist with this, information will be collected from billing authorities and other stakeholders relating to the avoidance and evasion practices that they have experienced in their areas and whether they consider they had sufficient powers to effectively combat them.
‘Rogue’ rating agent behaviour
The consultation recognises that the vast majority of rating agents perform a valuable role within the business rates system and act with honesty and integrity. The Government has however become aware of a small number of ‘rogue’ agents that are involved in the publication of avoidance schemes or otherwise involved in poor behaviour from those who lock ratepayers into unfavourable contracts or achieve poor outcomes from a failure to comply with Valuation Office Agency Processes.
Our experience
At Greenhalgh Kerr, we are assisting billing authorities with a wide range of avoidance schemes, including those that involve the grant of leases to companies subsequently liquidated or dissolved (as considered by the Supreme Court in Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16).
We have successfully assisted local authorities with schemes involving charity to charity letting. These schemes involve the grant of a lease to a charity whose charitable purpose is to bring empty property back into use by making it available to other charities in need of space.
In many of the charity to charity let cases, we have seen the charity that takes on the lease for the empty property granting a tenancy to another charity which shares the same charitable purposes, and on occasion, the same registered address.
Further information
Further information on the consultation and how you can respond can be found at:
If you are experiencing any difficulty with a rates avoidance scheme that has been deployed in your local area, speak to one of our key contacts today:
