Should charities be concerned by proposed reforms to business rates relief?

31st October 2023

Business rates are a tax levied on most non-domestic properties (i.e. a property used for business purposes), including shops, offices and factories, and are payable to the local authority by the occupier.

Certain businesses in England, such as charities or community amateur sports clubs (CASCs), are entitled to ‘business rates relief’ (BRR), which reduces the business rates payable if deemed eligible.

BRR is managed by the local councils; the local council issue the business rates bills, collect payments, and assess whether a business is eligible for such relief. If you’re a charity or CASC then you should contact your local council to find out if you are eligible and the level of your potential entitlement.

Charitable rate relief

A charity (or the trustees of a charity) or a CASC is eligible for a business rates reduction known as ‘charitable rate relief’‘ (CRR) if their property is “wholly or mainly used for charitable purposes.”

CRR entitles the applicant to a mandatory 80% reduction to their business rates bill. This discount can also be topped up with discretionary relief at the discretion of the relevant local council (up to the remaining 20% of the rates payable).

Empty property relief

Empty property relief (EPR) is another subcategory of BRR which entitles the property owner or tenant to relief of business rates on an empty property for 3 months – or six months for industrial or warehouse properties -starting from the day the property became empty, with the aim being to encourage vacant premises back into use.

This relief applies to properties owned by charities subject to the property’s next use mostly being for charitable purposes, and CASC buildings subject to the next use being mostly a sports club.

Once the exemption has been used, there is a six-week reset period during which the building must be occupied, and thereafter the exemption once again becomes available. The Local Government Association believes that this reset period “was the most frequent cause of business rates avoidance through contrived occupation.”

What should charities be concerned about?

The Treasury and the Department for Levelling Up, Housing and Communities’ joint consultation “Business Rates Avoidance and Evasion” aims to tackle abuse of BRR, particularly EPR and the ‘next in use’ exemption.

The government is also fearful that the CRR exemption is being abused by rogue property owners who exploit or mislead charities by drawing them into rates avoiding arrangements. This has led the government to consider the removal of such exemptions altogether or tightening up the eligibility criteria.

The government is considering certain proposals to prevent EPR being abused, including;

  • Increasing the current reset period from six weeks to either three or six months
  • Restricting the number of times the exemption can be used in any given time period
  • Amending the eligibility criteria to include additional conditions.

The government intends to clamp down on charities which are set up solely to be waived from paying business rates. It also aims to tackle the abuse of the criteria exempting a ratepayer from paying business rates where the premises are not authentically being occupied by a charity or a CASC as its next use.

The government set out its three-fold purpose of this consultation to:

  • Consult on specific measures to reform Empty Property Relief, to deal with known avoidance schemes
  • Gather evidence on wider avoidance and evasion practices within the business rates system, and seek views on whether billing authorities have sufficient powers and information to combat them
  • Gather evidence on “rogue” rating agent behaviour and seek views on how the government could address any problems

The government’s stated purpose is to support those who are legitimately entitled to such relief, whilst actively putting in place measures to prevent those who intend to abuse the business rates system.

Any measure which impacts on the regular outgoings of a charity will be a matter of concern to the sector. The consultation closed on 28 September 2023 and we await an update on this important area.