In 2016 Scottish Government announced that it had asked Ken Barclay, a former Chairmen of RBS, to chair a group to review, and make recommendations regarding, the operation of the non-domestic rating system in Scotland. The review group has now published its report and recommendations in a comprehensive 140-page document, the most complete review ever undertaken of the rating system in Scotland. Some of the recommendations are quite radical ones and it will be interesting to see if Scottish Government has the appetite to take them up or whether, as with the earlier Lyons Review in England, only a small proportion of the recommendations are fulfilled.

The terms of reference of the review group were “to make recommendations that seek to enhance and reform the non-domestic rates system in Scotland to better support business growth and long term investment and reflect changing marketplaces, whilst still retaining the same level of income to deliver local services upon which businesses rely”. The requirement that any recommendations should be revenue-neutral (i.e. retaining the same level of income) has prevented the review group from looking at the level of the tax; although the report does, helpfully, make the point that property taxes in the UK are higher than in any other developed economy when measured as a proportion of GDP.

The recommendations made in the report were underpinned by the conclusion that some form of property tax is still an appropriate way to fund the services provided by local authorities. The recommendations themselves cover three main areas: measures designed to “support economic growth”; those aimed at “improving ratepayer experience and administration of the system”; and measures to “increase fairness and ensure a level playing field”. The first category are the ones likely to grab the headlines, but there are some important suggestions in the two other categories also.

Amongst the recommendations aimed at supporting economic growth, the two most significant ones are the recommendation to carry out revaluations every three years from 2022 onwards, rather than every five years as at present, and the suggestion of a “Business Growth Accelerator” which would delay for twelve months any increase in rates when a new property is built or an existing property extended or improved. The aim of more frequent revaluations would be to ensure that rateable values are kept more up to date and the delay in imposing increased rate liability for new or improved property would be to incentivise new investment’ as it would apply to both new and altered property regardless of whether it was occupied or vacant.

The other important proposals in this category are a suggestion that the rates supplement payable by larger properties (RV £51,000or more) should be reduced from 2.6 pence to 1.3 pence and that there should be a review of the valuation for rating of plant and machinery, with particular focus on renewable energy installations and on plant and machinery installed to meet regulatory requirements.

There are a substantial number of recommendations aimed at improving the administration of the non-domestic rating system. They include a suggestion that a full list of recipients of rates reliefs should be published and that improved steps should be taken to identify properties that do not appear in the valuation roll. The report also recommends that standardised rates bills should be adopted throughout Scotland, with an incentive to ratepayers to sign up for online billing. It recommends that billing authorities should be required to refund overpaid rates more promptly, but should also be able to initiate recovery proceeding for unpaid rates earlier than at present. The report also suggests that Scottish Assessors, who are responsible for setting rateable values, should “provide more transparency and consistency of approach” and, if this cannot be achieved voluntarily, a new Scotland-wide statutory body should be created to accomplish this. There are a number of suggestions for reform of the business rates appeals system, centred around incorporating the existing Valuation Appeals Committees into the new Tribunals Scotland system, and including a proposal for a new power for Tribunals to increase rating assessments.

The final area considered in the report is a series of recommendations aimed at increasing fairness and ensuring a level playing field. The most broad ranging of these is a proposal for the creation of a General Anti-Avoidance Rule (GAAR) aimed at reducing avoidance and making it harder to exploit loopholes. The proposed GAAR would give greater powers to billing and collection authorities. As well as this general power, the report also makes recommendations designed to police what it sees as abuses of existing reliefs, and proposals to bring additional properties into liability for rates.

The key policing proposals are a requirement to occupy a property for six months, rather than six weeks as at present, in order to trigger a new rates-free period, and a requirement to show that owners of properties let as self-catering residential must show an intention to let for at least 140 days a year and actual letting for at least 70 days. The recommendations to bring new properties within liability for rates may prove contentious. They include “large scale commercial food processing on agricultural land”, “commercial activity on exempt parks and local authority land”, and the reform or restriction of charitable rate relief “for a small number of recipients”. Finally, the report recommends that all non-domestic property should be shown in the valuation roll and that current exemptions should be replaced by 100% relief, to improve transparency.

The review group has produced a very thorough report and has examined some interesting suggestions that are not included in its final recommendations, because they might have breached the requirement to be revenue neutral, such as a move to CPI indexation of the rate poundage in place of the current RPI linkage and an investigation of marginal rates of tax. The review has clearly been a wide-ranging and carefully considered one and is the type of review promised by government in England at various times in recent years, but never actually undertaken in England. Some of the recommendations are ones that we have been making for some time, such as a review of plant and machinery valuations, others, such as the proposals on changes to rate reliefs, are well argued but may prove contentious. It will be fascinating to see if Scottish Government is willing to adopt some of these suggestions, such as three-yearly revaluations, that would diverge property taxation in Scotland very markedly from that in England and Wales. But both Scottish Government and the review group are to be congratulated on actually carrying out the type of review that has been promised in England, but not delivered.