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Councils call for tougher legislation, new powers to tackle business rates avoidance

The Local Government Association has called for tougher legislation in England to tackle business rates avoidance, saying research had shown that the problem is costing local services an estimated £250m a year.

A survey of councils responsible for collecting business rates carried out by the LGA found that almost half (42%) of the 120 authorities to respond had taken or were taking legal action against those businesses avoiding paying rates. Of those that were not taking action, more than half reported that this was because the schemes in use were within the law.

The survey found that:

  • Eight in ten councils say they do not have adequate powers to tackle the problem in their local area.
  • Repeated short-term periods of occupation was the most common method of business rates avoidance (reported by 37% of responding councils). This sees businesses minimally occupying a property for around six weeks (42 days) before vacating and being eligible for 3 months empty property exemption from paying business rates. This can be done multiple times, the LGA said.
  • More than a quarter (26%) of responding councils reported firms using insolvency to avoid paying empty property rates while others reported difficulties in establishing ownership such as claims that another person has taken over a business, false tenancy agreements or phoenix companies where the stock is held in third party names.
  • 15% of responding councils reported business rates avoidance of more than 2% of total business rates income in their area.

The LGA said changes in legislation in England should be along the lines of those proposed in Scotland and Wales next year.

It specifically called for councils to be given new legal powers “to enter and inspect non-domestic properties to verify information relevant to billing and to request information from ratepayers and third parties”.

Councils also need the freedom and finance to set discounts and reliefs locally, the LGA said, “so they can restrict reliefs to businesses they strongly suspect of avoidance". The period of temporary occupation, which leads to repeated cycles of business rates relief, should be extended from 42 days to six months, it added.

Local government currently keeps 50% of business rates income to pay for local services. This is proposed to increase to 75% from April 2021.

The LGA said this also makes it imperative that the Government works closely with local government as part of its planned review of the business rates system.

Cllr Richard Watts, Chair of the LGA’s Resources Board, said: “Business rates are an extremely important source of income for councils and the local services our communities rely on every day. Too many businesses are exploiting loopholes and manipulating the system to avoid paying the tax they owe.

“The scale of business rates avoidance shows more needs to be done to tackle this behaviour and reduce avoidance. Every penny lost through business rates avoidance is money that could be spent on adult social care, children’s services, fixing roads and other vital community services.”

The survey was sent to all LGA member single tier and shire district councils. In total, 120 councils responded giving a response rate of 39%. The LGA summary with recommendations is available here and the full research report is here.

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