A newly-launched consultation on business rates avoidance and evasions shows just how out of touch the government is with current property markets, says Colliers’ John Webber.
“The government’s timing is impeccable,” said Webber. “Just as the investment markets stall and values fall, the government considers an attack on Empty Property Relief (EPR), which will make holding property even more expensive.
“We can only wonder who it really believes will benefit from such measures — certainly not property investors or pension funds — and by definition the general public, saving for a pension.”
The new consultation will run for 12 weeks, closing on 28th September. While acknowledging most businesses behave honestly and pay their due business rates bills, the government is concerned how best to counter avoidance and evasion in the business rates system.
Business rates provide a vital source of funding for local government, helping local authorities to deliver essential local services. In 2022/3 it raised £25bn, and the government believes £250m was lost to tax abuse last year.
The consultation consists of three sections. The first focuses on specific proposals to reform EPR, which, according to the government’s research, “is not working as intended”, and that abuse of EPR is “the most common form of rates avoidance”.
One measure it focuses on is the third-party occupation scheme, which is currently practised and has been successfully tested in the High Court. The government is potentially looking to close this scheme and bring it more in line with Wales and Scotland, which will severely limit the opportunity for longer-term empty rates relief opportunities using third parties.
Other key proposals are:
- To change the reset period when a ratepayer can access repeated periods of EPR from six weeks to three or six months between a claim;
- To limit the number of applications for EPR per property;
- To possibly give a single relief period;
- Property would need to be more than 50% occupied in the trigger occupation period; and
- EPR, for any purpose, would become discretionary from the local authority.
The third section of the consultation covers other general abuses of the business rates system, and the fourth relates to operations carried out by rogue agents.
Rating agents are not regulated and given the complexities of the business rates system there has been an increase in rogue practices in recent years. Colliers has already been a long-time caller for such regulation and reform.
“Whilst we acknowledge tax avoidance and evasion should be stamped on, we think the government has its emphasis all wrong,” said Webber. The main issue with the business rates system is that it is an unfair tax, and with [uniform business rates] at 51p in the pound, unaffordable and unsustainable for many businesses, as the number of hospitality/leisure business casualties has shown.
“No other country in Europe has such a high property tax. The government should be spending its energy concentrating on reducing the multiplier and making the tax affordable and sustainable for the longer term.”
He added: “We are particularly concerned about the attack on the EPR system. The government does not seem to understand that the significant amount of long-term empty commercial property in England is due to a lack of market demand and longer-term socio-economic factors, not because the landlord wants to keep it empty.
“Given the decimation in the retail markets in recent years and now concerns about the office sector, property owners and pension fund institutions need all the help they can get if they are to hold property and to keep the markets functioning. By increasing the holding costs of such property, the government is impacting on the value of everyone’s pension in the longer term.
“There are also ESG (environmental, social, and governance) issues. If the costs of holding empty properties are so prohibitive, owners will be tempted to demolish/vandalise/strip them out to take them out of the system and avoid paying punitive empty rates.
“The unintended consequences of the proposals will mean less modest properties will be around when occupiers are ready to look for them. And all this goes against the current view that we should be refurbishing rather than demolishing secondary buildings.”
