Posted: Wed 7th Oct 2020

£20m Business Rates avoidance issue around ‘contrived occupation’ could be solved with law change

Wrexham.com for people living in or visiting the Wrexham area
This article is old - Published: Wednesday, Oct 7th, 2020

One of the most abused areas of business rates could be changed, to help collect £10-20m that ought to be due to the public purse.

Welsh Government explain: “We believe that non-domestic rates should be collected as effectively and as fairly as possible. As part of a broader programme of reforms to the local government finance system, we are committed to reducing the opportunities for disingenuous persons to avoid their non-domestic rates liability.”

They cite data from 2018 that suggests amounts to an annual revenue loss of between £10 million and £20 million per year, calling abuse of Empty Property Rates Relief “the most commonly reported method of avoidance”.

Owners of empty non-domestic properties are not liable to pay rates for the first three months after a property becomes empty (the initial relief period). The aim of the initial relief period is to provide owners with a period of reprieve from paying rates while seeking a new occupier or use for the property. After the end of this period, the owner must pay full rates indefinitely. For industrial properties, the initial relief period is six months because industrial properties are generally harder to let and can take longer to repurpose.

The ‘abuse’ element comes in due to a rule that if at any time the property is occupied for a temporary period of 42 days or more where full rates are paid by the occupier it acts as a ‘reset’ to the relief cycle arrangements, and the owner is eligible for another cycle of three or six months relief. There is no limit on the number of times an owner can claim future cycles of relief so long as the temporary occupation criterion is satisfied.

The 42-day rule was introduced in 2008 to help owners who regularly let properties to short-term occupants, eg. pop-up and seasonal businesses.

Welsh Government say “abuse of the 42-day rule has become the most common and widely known method of non-domestic rates avoidance, where periods of artificial or contrived ‘occupation’ are staged”, although not detailed there are apocryphal stories of popup art galleries, spurious storage use, odd short term leases and various schemes to enable the ‘reset’ to take place.

The proposed change will require property owners to prove the property has been occupied for six months (instead of the current 42 days) and the occupier would need to pay six months of full rates before becoming eligible for a further period of relief.

Welsh Government say, “It is hoped this will discourage artificial or contrived occupation arrangements and that it will be less financially beneficial for people seeking to exploit a tax advantage.”

You can view the full consultation documentation, and respond online, via this page on the Welsh Government website: https://gov.wales/node/32838/respond-online

Responses can also be emailed or posted direct to:
Non-Domestic Rates Policy Branch
Welsh Government
Cathays Park
Cardiff
CF10 3NQ

Email: [email protected]



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