Welsh Assembly Government seeks responses, by 27 June 2018, to a range of questions regarding what it sees as business rates avoidance tactics and to its proposed measures to tackle avoidance. The consultation covers four main topics: the provision of information by ratepayers to billing authorities; empty rate relief; charitable rates relief; and possible general anti-avoidance rules. The consultation paper suggests that, of a total yield from business rates in Wales of about £1 billion per annum, possibly 1-2% is being lost as a result of business rates avoidance schemes. The avoidance tactics mentioned include repeated short-term occupations, alleged abuse of charitable rate relief and rate relief for insolvent businesses and failure to notify billing authorities of changes of circumstances that might lead to changes in business rates liability.
The consultation makes clear that Welsh Assembly Government intends to introduce legislation later this year placing a requirement on ratepayers to notify billing authorities of a change to their circumstances that might affect their rates liability, such as a change to ownership or occupation of property. The proposal is to require owners or occupiers to notify such a change within 21 days and to limit the application of exemptions or reliefs to the date of the change, with a civil penalty of up to £200 for failure to comply. The consultation also proposes that billing authorities would be able to require third parties, such as letting agents and utilities companies, to provide information about ownership and occupation of properties, again with the threat of a civil penalty for non-compliance. Additionally, the consultation proposes that billing authorities should be given a right to inspect properties, with a civil penalty for wilfully denying or obstructing inspections.
The consultation also seeks views on whether billing authorities should be required to publish details of all properties benefitting from mandatory or discretionary rates reliefs. A similar proposal was put forward by the Barclay Review of business rates in Scotland.
A significant part of the consultation focuses on empty rates relief and the alleged abuse of this relief to avoid empty rates liability either by repeated temporary occupations, or through so-called “phoenix” companies and charitable rates relief. The consultation seeks views on four options designed to curb what is considered to be misuse of empty rates relief. The first option is to restrict empty rate relief to one three or six month period per year. The second option is to retain the existing empty rate relief arrangements but require a six month period of occupation, as opposed to the current 42 days, before a new empty rate relief period would be triggered. The third option is to adopt option two, but to reduce empty rates liability to 50% of full liability, as opposed to the current 100%, so as to reduce the incentive to seek to avoid liability. The final option put forward is to introduce a set of criteria that would have to be met before a temporary occupation was considered to be sufficient to trigger a new period of empty rate relief.
The consultation also expresses concern about alleged abuse of the provision that allows charitable rate relief to continue to apply when a property is empty but the ratepayer is a charity and it appears likely that when next occupied the property will be occupied for charitable purposes. The paper seeks views on whether this provision should be kept, removed, or modified. The paper seeks views about the more general application of mandatory charitable rates relief and whether further legislative measures are needed to avoid this relief being abused.
The final parts of the consultation consider the possibility of introducing a general anti-avoidance rule in respect of business rates and the arrangements for non-legislative measures to improve “compliance”. The section on general anti-avoidance rule (GAAR) points to similar rules in respect of other taxes and considers giving greater powers to billing authorities to apply to ratepayers who seek to avoid paying rates and those who promote rates avoidance schemes. The section on non-legislative changes looks at ways in which billing authorities can work with other agencies, such as the Valuation Office Agency and the Charity Commission, to investigate alleged business rates avoidance.
The consultation paper seeks views on this range of proposals and questions by 27 June 2018.
As with much of business rates policy in Wales, the paper presents a thoughtful and well-explained series of proposals. Some of the proposals, such as the proposed requirement for ratepayers to notify of a change of circumstances, or a right of inspection for billing authorities, seem perfectly sensible ones which, although they will involve additional burdens on businesses, particularly smaller businesses, will help improve the billing system. But we cannot help wondering if some of the other may represent the proverbial sledgehammer to crack a nut. The paper identifies possibly 1-2% loss of revenue through alleged avoidance. This hardly seems to justify a GAAR, which in any event seems inconsistent with the recognised position that, within the law, taxpayers may organise their affairs so as to minimise their tax liabilities. The really interesting proposal, and one which is typical of the slightly different approach to business rates policy in Wales, is the idea of reducing empty rates liability to 50% so as to reduce the incentive for avoidance. It is encouraging to see a taxing authority that has heard of the Laffer curve. Owners generally do not keep property empty deliberately and empty rates is a tax on an unproductive asset. Perhaps empty rates need review – not empty rates avoidance.