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The Department for Communities and Local Government (DCLG) and HM Treasury have published a joint discussion paper on business rates avoidance, seeking views on how prevalent are business rates avoidance strategies and asking for comments on ways to tackle avoidance.
The paper focuses on four main methods of avoidance, which apply principally to empty rate liabilities. These are: intermittent occupation; “contrived” occupation by charities; next intended use for charitable purposes; and insolvencies. As well as these strategies which are used to mitigate empty rate liabilities the paper also puts forward four further categories of activity which are alleged to be used to avoid rates: “phoenix” companies; failure to notify billing authorities of changes; properties not appearing in the rating list; and rendering properties unoccupiable.
The paper seeks comment on the scale of rates avoidance using these and other methods and also seeks views on methods of tackling these rates avoidance strategies. The deadline for responses is 28 February 2015.
The discussion paper acknowledges that tax avoidance is legal and the paper treads an uncomfortable line, which in places appears to suggest that liability for rates should depend on some sort of moral, as opposed to legal, judgement. This does not appear to be a good way to try to run a tax system – one person’s “moral” view of an obligation to pay tax is not the same as another’s. Tax systems must be run on legal principles to be workable. The Government makes the law and, if it does not like the outcomes from the laws it makes, then it should change those laws; rather than present the outcomes as in some way immoral or reprehensible. There is nothing wrong with taxpayers working within the law so as to mitigate their liability and the courts have recognised this.
Much of the problem stems from trying to use rates, which was originally a tax on the occupation of property, to tax non-occupation. It is little wonder that since empty rate relief was very largely removed by the Rating (Empty Properties) Act 2007 there have been problems with empty rates. Many of these alleged problems have only arisen since 100% empty rate liability was introduced in 2008.
Some of the suggestions in the discussion paper, such as that local authorities should be able to withhold an exemption or relief where they conclude that “the occupation is contrived or artificial” seem likely to cause at least as many problems as the current arrangements. Ratepayers should respond robustly to point out that taxing unproductive assets at 100% is at least as big a problem as those that the discussion paper considers and is damaging to regeneration and redevelopment.
