Shaping the future for business rates
A comprehensive review of business rates is underway in England. The government recently published an interim report, with the final report delayed until autumn. One definite change coming is the closing of a loophole that has allowed people to avoid rates on holiday lets.
The current economic uncertainty has seen the government extending full relief through to the end of June for eligible retail, hospitality and leisure properties in England, as well as freezing the business rates multiplier in 2021/22. From 1 July 2021 to 31 March 2022 the rate falls to 66% in England. The governments of Scotland, Wales and Northern Ireland have extended business rate relief for twelve months. However, many high-street businesses want a more permanent overhaul to business rates to help them cope with the competition coming from online retailers.
The initial consultation, published as part of ‘Tax Day’ on 23 March, found the idea of replacing business rates with a capital value tax is not popular. Responses instead focused on improvements to the current system. For example:
- Reliefs and exemptions are too complicated.
- Small business rates relief can be a deterrent to expansion.
- Empty property rates unfairly penalise landlords.
- The current system, based around the business rates multiplier, is too inflexible and unresponsive to economic fluctuations.
A common view expressed by respondents is that the complexity of reliefs and the high overall burden create an incentive to attempt avoidance.
Holiday let loophole
Owners of holiday lets and second homes in England have been able to avoid council tax by registering their properties as businesses and therefore subject to business rates. In the vast majority of cases, small business rates relief then means no business rates are payable.
Business registration has been possible if a property was available to let for 140 days or more in a year. This is open to abuse when little or no realistic effort is made by landlords to attract lettings. New legislation will change the criteria so a property must actually be let out for 140 days to receive relief, somewhat stricter than the 105-day furnished holiday letting condition.
The interim report was published alongside a call for evidence, open until 31 October, and both can be found here.