Agenda item

Purpose of Report

 

To provide the Shared Revenues and Benefits Joint Committee with an update on current issues within non-domestic rates, related to City of Lincoln Council, North Kesteven District Council and West Lindsey District Council. The report was not intended to include non-domestic rate performance matters, as this was covered within the Performance Update reported to Joint Committee today.

 

Decision

 

That the content of the report be noted.

 

Alternative Options Considered and Rejected

 

None.

 

Reason for Decision

 

The report included some of the changes announced as a result of the Government’s financial support provided to businesses in the form of business rates relief. The report also focused on the financial impact of recent appeals and reductions to rateable values.

 

The following updates were noted:

 

NDR Changes and Significant Reliefs/Discounts

 

At the Autumn Statement on 22 November 2023, the Chancellor of the Exchequer announced a continued Government package of business rate measures to support businesses in England:

 

• Retail, hospitality and leisure relief would continue for 2024/25 at 75% up to £110,000 per business

 

• A freezing of the small multipliers for a further year at 49.9p an increase in the standard multiplier from 51.2p to 54.6p.

 

Retail, Hospitality and Leisure Relief 2023-24

 

Eligibility criteria for the Retail, Hospitality and Leisure Relief was set out by the Department for Levelling Up, Housing and Communities (DLUHC) and issued to Local Authorities on 20 December 2021, with no changes to the qualifying criteria for the year 2023/24. This relief had been extended for the year 2024/25. The table at paragraph 5.5 of the officer’s report reflected the significant reduction in the amounts awarded in the last three years (previously known as the Expanded Retail Discount (ERD) scheme), with an estimate on the award to be granted in 2024/25.

 

Potential reductions to rateable values were contained within paragraph 6, which included hotels occupied by asylum seekers.

 

Under Section 66(1) of the Local Government Finance Act 1988, a property was domestic if used for living accommodation with the only exception being in Section 66(2) which stated that a property was not domestic if being used in the course of a business providing short-stay accommodation to individuals whose sole or main residence was somewhere else.

 

Where a hotel was used as accommodation for refugees/asylum seekers, the occupants did not have a sole or main residence elsewhere. Therefore, the hotel should be brought into the Council Tax listings with the maximum charge being a Band H property.

 

The Valuation Office had recently removed a hotel from the Non Domestic Rating list and brought this into the Council Tax listings as a Band H Council Tax dwelling.(not in our districts) The result of this was a loss of Non Domestic Rating income to the authority which was not offset by the amount of a Council Tax paid for a Band H dwelling.

 

The Valuation Office were making changes to properties that they knew about, but as the Home Office would likely have a register of the properties being used to house refugees/asylum seekers, this may increase the number of hotels that were removed from Non Domestic Rating listings.

 

Business Rates Review

 

The final report for a Business Rates Review was also published at the Budget. The Budget and the Review committed in the longer term to improvements to the Business Rates system – which included;

 

• More frequent revaluations, moving to a revaluation every three years starting from the next revaluation which came into force on 1st April 2023, the next being 1st April 2026 and so on.

 

• The process of revaluation started approximately 2 years before the new valuations came into force. Therefore, the work had begun on collection of information for the list that would come into force on 1 April 2026

 

• For each revaluation, the Government introduced a Transitional Relief scheme. Transitional relief limited how much a bill could change each year. As the NDR system was self-financing, historically these limits had limited both large increases and large decreases. In the Budget, the government announced a change to the Transitional relief scheme so that only increases were limited. For any reduction in the rateable value, a ratepayer would receive the full benefit of the reduction immediately.

 

Heat Network Rate Relief Scheme

 

The Government had published the guidance for Local Authorities on the operation of the Heat Network Rate Relief Scheme for 2023/24, substantially unchanged from 2022/23. Local Authorities were to continue to deliver the discretionary relief using their discretionary powers for 2023-24 until the relief was made mandatory through the Non-Domestic Rating Bill. This was now mandated from 1 April 2026. The relief was targeted at hereditaments used wholly or mainly as heat networks with its own rating assessment, to provide relief for those networks generating from a low carbon source to ensure the policy supported decarbonisation.

 

Business Rates Avoidance and Evasion Consultation

 

In the Spring budget on 15 March 2023, the Chancellor announced that the government would consult on measures to tackle business rates avoidance and evasion.

 

A consultation paper was provided in July 2023 with a target date of 27 September 2023 for responses.

 

One of the most prevalent rates avoidances schemes was to ‘reoccupy’ a property for 6 weeks and 1 day, empty the property again and claim a further 3 month exemption. The occupation was contrived for the sole purpose of claiming a further period of empty exemption. Due to caselaw involving Makro Properties v Nuneaton and Bedworth (2012) and Principled Offsite Logistics Ltd v Trafford Council, the occupation had to be minimal such as moving a few boxes into a warehouse. Estimated losses to the shared service over 2022-23 for this type of rates avoidance was estimated to be - City of Lincoln £636k, North Kesteven £87k, and West Lindsey £65k

 

Whilst not illegal, the practice was considered to be rates avoidance and companies had been set up for the sole purpose of abusing this loophole in the legislation.

 

In March 2024, the consultation resulted in

 

·       the extension of the empty property relief ‘reset period’ to be increased from six weeks to three months with effect from 1.4.2024.

·       the announcement of a further consultation on adopting a ‘general anti-avoidance rule’ for business rates in England

·       and a commitment from the Government to improve communication about ‘rogue’ business rates agents.

 

Non Domestic Rating Bill – Royal Assent 26 October 2023

 

This bill made a number of changes to Non Domestic Rating.

 

One of the changes removed the 6 month backdating rule for discretionary rate relief decisions in England.

 

The Act created section 47(6A) which stated that a decision, by a billing authority in England, with regards a day was invalid if the day fell before 31 March 2023 and the decision was made more than 6 months after the end of the financial year to which it related, i.e. the backdating rule did not apply to decisions in respect of 2023-24 onwards.

 

This was likely to mean that with effect from 1 April 2024 we would be able to make decisions on discretionary reliefs fully retrospectively (in respect of the financial year 2024/25 onwards...." ).

 

The other significant change was the decoupling of the multipliers and, in effect, the abolition of the small business supplement from 1 April 2024. This meant that Government could choose to raise the two multipliers by different amounts.

 

The bill also paved the way for data sharing between the Valuation Office Agency (VOA), HMRC and billing authorities. The authorities already had a sharing agreement with the VOA but due to the changes with what they could now share, we expected a new sharing agreement and protocol to be announced by the VOA.

 

Occupied for Purposes of Prayer

 

Further to the rates mitigation schemes that were widely advertised on the internet, authorities were seeing a new scheme where empty properties were being ‘let’ to ‘religious groups’ for religious worship and ceremonies.

 

A number of authorities were reporting that they were being informed that an empty restaurant, empty warehouse etc was being used in this way. This would attract an exemption, but the property must be registered as a property for religious worship and ceremonies with the Registrar General.

 

The Registrar General had been notified by several local authorities of our concerns.

 

Intention to Abolish Mandatory Relief for Private Schools

 

The abolition of mandatory relief for private schools was outlined in the technical note on applying VAT to school fees, published on the 26 July 2024.

The intention was to remove entitlement to mandatory relief for private schools from April 2025 with primary legislation being introduced after the Autumn budget in October2024.

Members discussed the content of the report in further detail.