Empty Property Business Rates & Business Rates Issues 2012

1. Who am I ?
Stuart Hicks BSc (Hons) MRICS IRRV (Hons)
Director, Dunlop Heywood
Email: stuart.hicks@dunlopheywood.com
Tel: 0161 817 4844
Member 1992 : Royal Institution of Chartered Surveyors
Member : Rating Surveyors Association & Town Panel Chairman
Former Chairman : British Retail Consortium Rating Panel (NW)
Recognised as a leading rating advisor across the UK in respect of various categories of
specialist property and in empty rates liability.
Revenge of the men in grey suits…
And some reasons to be cheerful… www.dunlopheywood.com
November 2012
11/5/2012 1

2. Agenda Business Rates – What Are They?
1. Business Rates – what are they? 1. Business Rates are a charge on the occupation of commercial
property; a tax. But from the 1960’s the owner became liable if certain
2. Rateable Value – what is it? classes of property were left vacant.
3. The Valuation Date – controversy! 2. The ratepayer is either the occupier or the owner of the property.
4. The Economy – over supply & empty property. 3. Central Government collects all business rates from Local Authorities.
5. Empty Property Rates & Mitigation – Evasion or Avoidance? 4. Local Authorities fund services from Council Tax, Fees & Charges and
And finally... a Central Government Grant.
7. Postponement of the 2015 Revaluation 5. The Central Government Grant includes redistributed Business Rates.
6. Central Government determines how much Local Authorities can
spend and distributes taking account of the level of need and resource.
11/5/2012 2

3. Business Rates – The Times, They Are A Changing! Rateable Value – What Is It?
1. A new retention scheme is being delivered through the Local Government 1. The measure or yardstick for business rates liability is rateable value.
Finance Bill and will be implemented from April 2013. The definition is prescribed in Schedule 6 paragraph 2(1) before
2. The retention scheme allows Local Authorities to retain a proportion of Business amendment by the Rating (Valuation) Act 1999:
Rates as well as any growth in same.
‘The rateable value of a non-domestic hereditament shall be taken to be
3. There are 24 new Enterprise Zones in England; an amount equal to the rent at which it is estimated the hereditament
• Rate Relief will be funded by Central Government (£275k over 5 might reasonably be expected to let from year to year if the tenant
years). undertook to pay all usual tenant’s rates and taxes and to bear the costs
• 100% business rates retention. of the repairs and insurance and other expenses (if any) necessary to
maintain the hereditament in a state to command that rent’
4. Will Local Authorities become more aggressive in the collection of business
rates and in their relationship with the Valuation Office Agency?
5. Business rates deferral scheme for 2012/13 similar to 2009/10 scheme.
11/5/2012 3

4. 2010 Rating List – Valuation Date 1 April 2008
11/5/2012 4

5. Valuation Date – the Valuation Office Agency perspective... The Economy – Over Supply & Empty Property
1. Over Supply – availability so great that prices fall.
VOA
Valuation Date 1 April 2008
11/5/2012 5

6. The Economy – Over Supply & Empty Property Empty Property Rates & Mitigation – Evasion or Avoidance?
1. Appeals - remember the Valuation Date! 1. Up to April 2008 50% business rates payable on empty shops and
2. All rating valuations need to be framed within the economic context of 1 offices; 0% payable on industrials and warehousing.
April 2008.
2. In 2008 compulsory 100% exemptions changed.
3. The economic context will differ by sector and by location; e.g. financial
3. After initial 3 months (commercial property) or 6 months (industrial
services.
property) 100% relief full business rates are payable unless the
4. To appeal we need to identify a change in the physical state or use and rateable value is less than £2,600.
occupation at the relevant date.
4. Is it about revenue or encouraging use?
5. Vacancy rather than availability.
5. What effect will the new retention scheme have?
• Change in the level of occupancy.
• Building or availability of new space.
11/5/2012 6

7. Empty Property Rates & Mitigation – Evasion or Avoidance? Empty Property Rates & Mitigation – Evasion or Avoidance?
1. Inland Revenue Commissioners v Duke of Westminster 1936 1. Furniss (Inspector of Taxes) v Dawson D.E.R. Furniss v Dawson G.E.
• Lord Tomlin “Every man is entitled if he can to organise his Murdoch v Dawson R.S. 1984
affairs so as the tax attaching under the appropriate Acts is • Steps inserted in a preordained series of transactions with no
less than it otherwise would be” commercial purpose other than tax avoidance should be
• Lord Atkin “the subject...has the legal right to dispose of his disregarded for tax purposes; notwithstanding that the inserted
capital and income as to attract...the least amount of tax” step has a business effect.
2. WT Ramsey Ltd v Inland Revenue Commissioners 1982 2. Extension to the Ramsey Principle.
• Where a transaction has pre-arranged artificial steps which 3. The Westminster Principle establishes the right to minimise tax and the
serve no commercial purpose other than to save tax, then the Ramsey Principle allows for artificial financial transactions to be
proper approach is to tax the transaction as a whole. ignored.
11/5/2012 7

8. Empty Property Rates & Mitigation – Evasion or Avoidance? Empty Property Rates & Mitigation – Occupation
1. The law is dynamic and in this area the law is evolving. 1. There is nothing in the Regulations that prevents a ratepayer from repeatedly
occupying fro 6 week periods to claim repeated periods of relief.
2. Most mitigation schemes rely on a 6 week period of occupation
2. Makro Properties Ltd and Makro Self Service Wholesalers Ltd v Nuneaton and
(following which the relevant period of rates relief applies) or
Bedworth BC 2012
exemption.
• Storing 16 pallets of documents.
3. Case law exists on what constitutes occupation. There are four • Occupied 0.2% of 140,000 sqft
elements:
3. Judge Jarman said “It has been recognised for a considerable amount of time
• There must be ACTUAL occupation. that ratepayers...can and do organise their affairs to avoid paying rates. In
• It must be EXCLUSIVE to the occupier. Gage, Alverstone CJ dealt with this question and stated that if the ratepayer
thought that she would not be within the charging act by going out of
• It must be BENEFICIAL to the occupier. possession, she was quite entitled to do so. In my judgement the same applies
• It must not be for too TRANSIENT a period. to going in and out of occupation.
11/5/2012 8

9. Empty Property Rates & Mitigation – Blue Tooth Empty Property Rates & Mitigation – Charity
1. The installation of a small electronic box broadcasting messages on blue tooth. 1. Charities benefit from a mandatory 80% relief and the remaining 20% liability
can be cancelled by a Local Authority on a discretionary basis.
2. Various Magistrates Court Decisions including Chester and West Cheshire
Council v Public Safety Charitable Trust 2012 2. Further the Local Government Finance Act 1988 S.45a(2) provides that empty
• District Judge NPM Sanders held that PSCT was in occupation. properties are zero rated where;
• The ratepayer is a charity and;
3. As PSCT are a registered charity and the messages broadcast were of a
charitable nature; it was further determined that the ratepayer was entitled to • It appears that when next in use the hereditament will wholly or mainly
80% mandatory rate relief. be used for charitable purposes.
4. Local Authority to appeal along with two other similar cases. 3. In Preston City Council v Oyston Angel Charity 2012 relief was confirmed and
further that the intention to occupy did not have to be by the ratepayer charity.
11/5/2012 9

10. Empty Property Rates & Mitigation – Liquidation Empty Property Rates & Mitigation – Liquidation
1. If your property falls into one of the following you will be exempt from paying 1. Method:
business rates: 1. Company set up with share capital of £100.
• A property where the owner is bankrupt. 2. Signs leases for property at £1 rent.
• A property where the owner is entitled to possession as a liquidator. 3. Makes a declaration of solvency.
• A property whose owner is a company in administration. 4. This enables the company to enter a Members Voluntary Liquidation.
• A property whose owner is a company subject to a winding up order. 5. Liability for rates remains with the company in liquidation i.e. exempt.
2. Some of the more ambitious mitigation schemes push the boundaries of the 2. Because there are no creditors to press for winding up exemption remains.
law.
3. The Insolvency Service recently wound up 13 companies in the public interest.
3. In such cases the Insolvency Service may consider taking action against Commenting on the case Investigation Supervisor, Alex Deane said;
Company Directors.
“In making the decision to wind up these companies, the court is sending a clear
4. How will the new retention scheme change things? message that schemes which abuse the insolvency regime to avoid paying
business rates liabilities are not acceptable.”
11/5/2012 10

11. Postponement of the 2015 Revaluation Postponement of the 2015 Revaluation
1. The Government has announced its intention to postpone the next business 7. Most Conservative seats are in the South which would see the biggest
rates revaluation in England to 2017. increases in rateable value along with a likely increase in the UBR.
2. Since the last Revaluation based upon 2008 rents, the economy and property 8. Similar ‘chickening out’ by Labour when they cancelled the Council Tax
market has been subject to exceptional changes. revaluation due in 2007; another political ‘hot potato’.
3. If the Revaluation went ahead the valuation date would be 1 April 2013. 9. Business Rates Information Letter (9/2012)
4. For the 2015 Rating List to be put in place a draft List would have to be “The Government is committed to maintaining up to date rate bills through
published in October 2014. regular five yearly revaluations in England which will resume after 2017, once
the economy has had a chance to recover fully from the financial and fiscal crisi
5. The General Election date is fixed as 15 May 2015. So postponing removes a this Government inherited from the last Administration”
very contentious element from campaigning; rateable value shifts.
6. How would your rateable value change? How would rateable values change in
the North East, North West, Yorkshire and the Midlands?
11/5/2012 11

12. ‘Complex problems often have quick,
easy to understand, wrong answers’
11/5/2012 12