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. The Government sought responses in two phases:
- Views on the multiplier and reliefs sections, by 18 September, to inform an interim report in the Autumn
- Responses on all other sections are invited by 31 October, ahead of the review’s conclusion in Spring 2021.
*Update*: the Government has published a summary of responses document (details below)
The Charity Tax Group (CTG) has 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.
CTG and sector partners were invited by HM Treasury and MHCLG to make a supplementary submission to Part 1 of the Review, which focused mainly on charity reliefs, building on the primary consultation response. This submission reiterated the importance of maintaining existing 80% mandatory reliefs and challenged assertions made by other stakeholders on capitalisation of reliefs into higher rents and perceived distortions of competition caused by charity reliefs. We also highlighted the importance of the next in charitable use exemption, but made suggestions for ways in which its implementation and administration could be improved to avoid any misuse.
Our response to part 2 of the consultation noted that mandatory and discretionary business rates reliefs are very important to the financial viability of many charities and were worth over £2bn in 2018/19. Given the current financial pressures on charities, as a result of COVID-19, our responses have made clear that charities should not be left any worse off as a result of this Review and should be granted additional support where funding is available. As a minimum, this should include the retention of 80 percent mandatory rate relief for charities, which should be replicated in some form if there is a more radical restructuring of the taxation of property in the long-term. While charities receive significant reliefs, approximately £400m of business rates is still paid by the sector, where discretionary relief is not awarded. Payment of rates and claims for reliefs can present a significant administrative burden for charities, particularly where they have a nationwide portfolio of properties and have to deal with large numbers of individual billing authorities. Given the importance of business rates reliefs to charities it is important that any substantive changes to the administration and structure of business rates relief should only be taken following detailed consultation with the sector on specific proposals.
Interim report: 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
2.32 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.
2.33 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