Business rates avoidance is costing local services an estimated £250 million a year, a new LGA survey reveals, with eight in 10 councils saying they do not have adequate powers to tackle the problem in their local area.
Income from business rates accounts for about a quarter of council spending power and the LGA is calling for tougher legislation in England to close loopholes and tackle avoidance, along similar lines to those proposed in Scotland and Wales next year.
The most frequent method of avoidance was short-term periods of occupation (37 per cent), which sees businesses minimally occupying a property for around six weeks (42 days) before vacating and being eligible for three months’ empty property exemption from paying business rates. This can be done multiple times.
More than a quarter (26 per cent) 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.
The LGA said councils need 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 so they can restrict reliefs to businesses they strongly suspect of avoidance. The period of temporary occupation, which leads to repeated business rates relief cycles, should also be extended from 42 days to six months.
Cllr Richard Watts, Chair of the LGA’s Resources Board, said:
“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.
“Councils want to work with government to explore how to better protect the system and the powers needed so they can collect money owed for local services.”