The Government committed to conduct a fundamental review of business rates and published the terms of reference for the review at the Spring Budget. This call for evidence sought views on how the business rates system currently works, issues to be addressed, ideas for change and a number of alternative taxes.
*Update*: the Government has published a summary of responses document (details below) and full response to the consultation. Importantly for charities the Government does not intend to remove any of the existing reliefs at this time. This is very welcome news as these reliefs are worth over £2bn a year to charities.
The Charity Tax Group (CTG) provided technical and strategic input to a joint response to the consultation with CFG and NCVO. Key points from the response include:
- Property costs are the second largest cost behind wages for many charities. Mandatory business rates relief is therefore crucial for many charities and is of particular importance to small charities.
- Covid-19 has placed a significant financial strain on charities. Throughout the crisis, charities have seen an increase in demand for services coupled with a significant decrease in income.
- Given the precarious economic situation facing many charities, it is vital that charities are not left any worse off as a result of this review. At the very least, mandatory rate relief of 80 per cent should be retained to ensure charities can play a meaningful role in the country’s recovery efforts.
- Business rates relief is particularly important for charity shops. Having a high street presence for charities is hugely important for brand awareness, for recruiting volunteers and generating income and to delivering public benefit.
- Business Rates Relief should be available to all charities as defined by the Charity Commission under charity law.
- There is sometimes a misconception that mandatory rates reliefs results in higher rents over time. Many charities strike rent deals that are comparable with market competitors and they have a fiduciary duty to ensure that they do not overpay when using charity funds.
- Measures to prevent fraud and abuse of charity business rates relief are important but need to be targeted and proportionate.
On 23 March, the Government published an interim report, including a summary of responses received to the call for evidence for the fundamental review. The document covers the contributions received across the scope of the review, including the overall level of the tax, revaluations, administration and billing, and alternatives to business rates. The fundamental review will conclude in the autumn. There was a specific reference to charitable rate relief.
Charitable rate relief
The Charities sector called for continuation of charitable rate relief, including the 80% mandatory rate, on the grounds that this is simple, effective, and easy to apply. These respondents were opposed to introducing further differentiation between charities, and suggested increasing funding to Local Authorities for the 20% discretionary component.
Other respondents provided reflections on charitable rate relief. Several felt that this can have a distortive effect on high street rents, creating a disadvantage for other tenants, and may deter landlords from investing in redevelopment. Others disagreed, suggesting that charities typically occupy properties in low demand. Others were supportive of the continuation of the relief, but expressed the view that all tenants should pay something, rather than allowing zero rates in certain cases.
The report sets out the Government’s conclusion of its review of the business rates system, the changes the government will pursue and a broad timeline for implementation of those changes. Where necessary, further technical consultation will follow in due course.
The findings of the review confirm that business rates are a vital component of the business tax mix. Against the current fiscal backdrop, and more generally, the Government does not consider there to be merit in radical overhaul or abolition as has been suggested by a small minority of stakeholders. The government considers that a tax on the use and value of commercial property remains an important part of a balanced business tax system alongside taxes on profit and consumption. The government wants to preserve the benefits of business rates but will make changes to make their operation fairer and more effective for businesses.
The report notes that the system of business rates reliefs plays a vital role in ensuring the overall sustainability and fairness of the tax, and the government continues to keep the full set of reliefs under review to ensure that these remain fit for purpose. Importantly for charities the Government does not intend to remove any of the existing reliefs at this time. This is very welcome news as these reliefs are worth over £2bn a year to charities.
The Government response also confirms plans to:
- support the high street and reducing the burden of business rates by providing a tax cut worth almost £1.7 billion for eligible Retail, Hospitality and Leisure properties, for 2022 to 2023. This amounts to support worth more than double the relief that was announced pre-COVID for the 2020 to 2021 financial year and includes additional businesses such as hotels, gyms and bowling alleys. Excluding COVID-19 reliefs, this relief is the biggest single year reduction to business rates in 30 years.
- Cut the burden of business rates for all businesses by freezing the multiplier for 2022 to 2023, saving business in England £4.6 billion over the next five years.
- Introduce a new relief to support investment in property improvements, enabling occupying businesses to invest in expanding their properties and making them work better for customers and employees.
- Introduce new measures to support green investment and the decarbonisation of non-domestic buildings. This will provide exemptions for eligible green plant and machinery such as solar panels, wind turbines and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for low-carbon heat networks that have their own rates bill.
- Move to three-yearly revaluations from 2023 and bringing forward a technical consultation on the supporting changes later this year.
- Invest in business rates systems to ensure fundamental change by providing £0.5 billion for the Valuation Office Agency (VOA) as part of the Spending Review, including funding for important changes to upgrade VOA IT infrastructure and digital capabilities. Additional funding is also
being provided for the new reform measures supporting the move to a more frequent revaluations cycle.
- Provide stability ahead of the 2023 revaluation by extending Transitional Relief and the Supporting Small Business Scheme for 2022 to 2023 to protect small businesses from significant bill increases on the final year of the current revaluation cycle.
- Considering the arguments for and against an Online Sales Tax which, if introduced, would raise revenue to fund business rate reductions. A consultation will be published on an Online Sales Tax shortly.