We commented in these pages last week on the massive package of business rates reliefs introduced by the Chancellor in response to the effects of the Covid-19 outbreak. As the impact of the virus outbreak has an increasing effect on our economy the Government has announced that the rates holiday is to be extended to include nursery properties. These are defined as properties “occupied by providers on Ofsted’s Early Years Register and wholly or mainly used for the provision of the Early Years Foundation Stage”. These properties will benefit from the 100% rates holiday for the year 2020/21, in the same way as those properties benefiting from the announcements last week.

The question of whether state aid limits will apply to this relief, and to those reliefs announced last week, remains unresolved. The EU Commission has adopted a revised “temporary framework” for state aid which increases the de minimis limit from €500,000 to €800,000. In the context of the effect that the virus outbreak is having on economies and businesses across Europe, the revised temporary framework seems akin to taking a pea shooter to a tank.

Before the temporary framework was adopted, the UK Government had already sought clearance under Article 107(3)(b) of the Treaty on the Functioning of the European Union for an immediate change to the UK’s tax treatment of non-domestic property, in response to the ongoing Covid-19 emergency, which would remove the relief from the state aid framework entirely. Government advice to local authorities is to apply the reliefs, including this latest extension to them, ignoring any state aid restrictions.

What are the likely outcomes given the diverging approaches of the EU commission and the UK government?

The most likely possible outcomes seem to us to be:

  • Given the catastrophic effects that the virus outbreak is having on the economies of the number of European countries, the EU Commission may decide that its temporary framework is wholly inadequate to reflect that impact. This could lead to the Commission temporarily suspending state aid restrictions, or to some other, much more substantial, expansion of the de minimis restriction.
  • The EU commission might approve the UK Government’s application to change UK tax treatment of nondomestic property, recognising the huge economic impact here.
  • If the Commission does not approve the UK Government’s application, it is possible that the UK Government could extend the rates holiday to all ratepayers, which would, on the face of it, remove the issue of state aid limits altogether, because taxpayers would be treated equally.
  • Alternatively, the UK government could choose to fight the issue, in which case it will disappear into a morass of other issues surrounding the U.K.’s departure from the EU.

Whichever of these outcomes arises, or, indeed, if some different outcome occurs, for the time being at least ratepayers can take some comfort from the government statement that “Authorities should prepare to award the discount ignoring de minimis limits”. Those reliefs that have been promised by UK government, including the latest ones, should be delivered by local authorities.

The position for other business ratepayers not qualifying for the current reliefs is more complex. There are questions as to whether those that are unable to use their properties, but still have goods and materials there, are eligible for empty rate relief. There are also questions as to whether, in the light of the government’s latest restrictions on movements, those properties should be exempt from empty rate liability because they cannot legally be occupied, and finally, there is the much longer term question of what effect this outbreak has on property values across the country.

As in all aspects of our lives at present, things are changing very rapidly, and we will endeavour to keep these news pages updated to reflect this.

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