Q. There has been some delay in being able to serve a demand on an occupier for business rates. Is the council still able to pursue the occupier for business rates?

A. Regulation 5(1) of the Non-Domestic Rating Regulations 1989 requires a demand notice to be served on, or as soon as practicable after, the 1 April of the relevant year.

The question has been considered in a number of recent cases including:

• North Somerset DC v Honda Motor Europe Limited (2010)
• R (Waltham Forest LBC) v Waltham Forest Mags’ Court and Yemyom Ventures Limited (2008)
• Regentford Limited v Thanet District Council (2004)
• Encon Insulation Limited v Nottingham City Council (1999)

The most recent case of North Somerset DC v Honda Motor Europe Limited provides a useful review of the position.

Background

The council served statutory notices on the defendant rate payers in November 2007 stating that each of the parties were liable for business rates on their property during some or all of the years between 2002 and 2007. Council error alone was the cause of the failure to send the demands in the relevant rating year. The council brought civil proceedings against the rate payers in the high court to recover the rates. In their defence, the rate payers contended that demand notices for the years 2002-2006 had not been served in accordance with the 1989 Regulations. The rate payers argued that the late service itself was enough to render the demand notices invalid or, if more than late service was required to render the notices invalid, that they had suffered real and substantial prejudice as a result of the council’s delay and so the council should not be entitled to recover.

Court’s approach

First, the court considered whether Parliament intended total invalidity to result from a failure to comply with the statutory requirements. In this case, the court’s view was that Parliament could not have intended that rate payers would be relieved of the obligation to pay tax because of what might be no more than a minor administrative failing on the part of the billing authority. The court considered that if non-compliance with Regulation 5 gave rise to automatic invalidity, it would increase the burden on other tax payers in circumstances where there might be no conceivable prejudice to the individual rate payer.

Secondly, whether non-compliance should result in invalidity in the circumstances of the particular case. The court applied a case specific analysis requiring the assessment of (1) whether there had been substantial compliance of the legislation and (2) whether the affected person had suffered substantial prejudice as a result of non-compliance.

Has there been substantial compliance?

As regards to the first limb, the court considered that failures to comply with statutory obligations, such as lengthy delays, may be sufficient in themselves to deny councils the opportunity to seek recovery of rates.

Has there been substantial prejudice?

In relation to the second limb, the court agreed with the rate payer’s argument that a person who has suffered prejudice as a result of a failure by a council to send a timely demand notice may be able to defeat recovery. The court held that the prejudice suffered by the rate payer must be substantial (inconvenience is not sufficient), not technical or contrived and must outweigh the countervailing public interest in the collection of taxes, the interest of other tax payers, and the revenues of the local authority concerned.

Examples of prejudice

Prejudice to a rate payer as a result of a late notice to pay rates can occur in any number of ways and will depend on the circumstances of the case. In this case the court gives some examples of a number of ways that might be considered to be sufficiently prejudicial to the rate payer to make a demand invalid. For example in the first one the court considered that on the facts of the case it was clear that if the rate payers had been aware in 2002, or at any time thereafter, that they were liable to rates, they would have taken steps that would have either extinguished that liability (at least for the future) or substantially reduced it. For example, they would have divided up the site and sought to amend the rating list in order to reduce the size of the rateable hereditament or renegotiated the leases on the properties in order to extinguish their rates liability. Second one, two of the rate payers in question were car manufacturers and the evidence before the court was that, had the rate payers being aware of their liability in the relevant year, they would have been able to pass this cost on to the dealers by adding it to the wholesale cost of their cars.

Waltham Forest case

Similarly the Waltham Forest case concluded that the Magistrates’ Court needs to consider whether there has been substantial compliance with Regulation 5 and its objectives and the issue of whether the time which has elapsed has resulted in procedural or a substantive prejudice for the rate payer. The court pointed out that this conclusion was not intended to provide some sort of charter or licence for local authorities not to take seriously their duty to serve demand notices in accordance with the Regulation 5 as soon as is practicable. The longer the delay that is involved in the serving of a demand notice then the greater the risk the rate payer will be able to show prejudice.

Summary and comment

Failure to serve demands in the tax year concerned is not fatal to a claim

The longer the delay, the more likely the conclusion that invalidiy follows. Examine and note the reasons why the delay may have taken place, in preparation for justification of the council’s position.

Prejudice caused to the rate payer as a result of the delays can defeat a claim, but the prejudice must be substantial and not contrived, or mere inconvenience.

Invite the rate payer to explain the prejudice caused and provide evidence in support.