Business rates avoidance: discussion paper

The government is committed to dealing with avoidance in the tax system. At Autumn Statement 2014, the government announced it would open up a discussion to:

• better understand the type and scale of business rates avoidance in England
• find ways to tackle business rates avoidance so that all ratepayers pay the business rates that they should pay

This document builds on the work undertaken by the government’s anti-avoidance working group and requests responses from interested parties to further inform the government as to the types and scale of avoidance, as well as ideas around potential solutions.

Responses are requested by 28 February 2015.

The Department for Communities and Local Government and HM Treasury will collate responses to inform the government’s future action on business rates avoidance.

Update

In April 2014, the government published a discussion paper on business rates administration in England.

Interested parties raised concerns about some ratepayers exploiting the business rates legislation to avoid paying business rates.This is because, although business rates are hard to avoid, a small, but growing, minority avoids paying the business rates that are properly due.

By manipulating the system, this imposes an unfair burden on the honest majority and prevents money from reaching the crucial public services that need it.

In response to this, the government published a discussion paper on business rates avoidance in December 2014.

Officials from HM Treasury and the Department for Communities and Local Government held meetings with external stakeholders. These meetings were attended by business and charity representative bodies, rating agents, local authorities and other government bodies.

This work is taking place in tandem with broader work being undertaken by HMRC on tax avoidance, and the review of business rates announced in March 2015.

Avoidance discussion paper

The government would like to thank everyone who took the time to respond to the business rates avoidance discussion paper.

The consultation was open for 12 weeks from 10 December 2014 until 28 February 2015. The paper asked for views on the nature and scale of business rates avoidance in order to help the government:

• confirm its understanding of the scale of business rates avoidance

• confirm and expand its understanding of the methods of avoidance being used

• gauge stakeholder appetite for action on business rates avoidance

• inform the development of measures to tackle business rates avoidance

In total 143 responses were received. Responses were received from local authorities, rating professionals, professional and representative bodies such as the Federation of Small Business, the Local Government Association, the British Council of Shopping Centres, the British Property Federation, the Institute of Revenues Rating and Valuation and individual businesses.

The table below provides a breakdown of responses by the type of organisations who responded.

Type of organisation Number of responses Local authority 80 Rating agents 34 Representative bodies 14 Individual businesses 6 Other 9 Total 143

The key findings from the responses to the discussion paper were that:

• most respondents were aware that specific methods of avoidance exist and agreed on which methods are the most frequently exploited
• a wide range of anti-avoidance measures was proposed, some of which targeted specific methods of avoidance and others took a broader approach
• although most respondents recognised that there is a need for anti-avoidance measures, views differed as to which of them would be the most appropriate

Local authorities expressed the view that business rates avoidance is an important issue that needs to be addressed because it has a detrimental impact on the public purse and councils’ ability to deliver services.

They identified the need to implement measures to stop the abuse of business rates reliefs for the purposes of avoiding business rates.

Around 10% of responses provided general comments on business rates and called for an overall review of business rates to respond to wider concerns about the system. For example, some business respondents expressed the view that charging empty property rates was unfair and called for the regime to be reformed.

See the list of respondents and summary of stakeholder views on the methods and scale of avoidance and addressing avoidance in the document above.

Estimated scale of business rates avoidance

While most business and charity responses felt unable to comment on the scale of avoidance, many local authority respondents, and notably the Local Government Association (LGA), that had surveyed its members on business rates avoidance, provided the government with information to inform its understanding of the scale of avoidance.

Based on the evidence provided from respondents, the LGA estimates business rates avoidance at 1% of business rates revenue, c£230 million.

Next steps

This evidence of scale confirms to the government that business rates avoidance must be addressed.

Many respondents were able to provide greater details of avoidance methods and proposed measures to address avoidance.

The government is currently considering the responses to the discussion paper so that options for addressing avoidance can be brought forward.

This work will be coordinated with the business rates review which is evaluating the effectiveness of reliefs and exemptions.

Further, anti-avoidance work will complement the ongoing commitment to give local authorities in England greater power over their budgets.

The development of anti-avoidance measures will be announced in due course.