News on business rates in Scotland has, quite rightly, focused on a raft of measures to assist businesses in this unprecedented and challenging period. There have, however, been a number of other changes announced in recent months which businesses, given the current situation, may have missed. As the world begins to look at what lies beyond the immediate impact of Covid-19, they should carefully consider what these new measures could mean.
Rates relief and grants
First, it is worth reviewing the main reliefs and grants available to ratepayers introduced on the back of Covid-19. The Scottish government introduced a 1.6% reduction in the rate poundage, reversing the proposed increases for 2020/2021 for 12 months from April 2020, while the retail, hospitality, and leisure sectors will receive 12 months of 100% rates relief from April 2020. Businesses in these sectors with rateable values of between £18,000 and £51,000 also have a grant of £25,000 available to them, and companies in receipt of either small business scheme relief or rural relief are eligible for a £10,000 grant.
Initially, the Scottish government limited grants to one per business rather than per property. However, in addition to the 100% grant on the first property, ratepayers will now be eligible for a 75% grant on each subsequent property that meets certain criteria. While this is not on par with England, it is nevertheless a step in the right direction. It should also be noted that grants will be subject to state aid regulations, whereas the reliefs are not subject to such limits.
The eye of the storm
Prior to the onset of the Covid-19 pandemic and the subsequent reliefs and grants that were introduced, a host of other proposals were announced – many as a result of the Barclay Review of Business Rates – to modernise the business rates system in Scotland. These changes are significant and while they haven’t hit the headlines in recent weeks they are still in the pipeline.
From April 2022, the revaluation cycle – when properties are reassessed to arrive at fresh rateable values, on which non-domestic rates bills are determined – will be reduced from five years to three, with the next revaluation after 2022 being 2025, as opposed to 2027. The date for evidence used to determine these assessments, known as the “tone date”, will be set two years before. Critically, in the case of the next revaluation cycle, that will be the eye of the Covid-19 storm: April 2020.
This unhappy coincidence raises a number of questions. Where will the evidence come from in a market that has seen a drastic reduction in deals? How will the evidence be interpreted in light of current events? In fact, on 6 May 2020 the UK government announced that it would be postponing the next revaluation in England, which had previously been brought forward from 2022 to 2021. Although slated for one year later in April 2022 north of the border, could there now be a postponement of the revaluation, or change in the tone date in Scotland? Whatever the case, it provides the relevant authorities with much to ponder.
Punitive penalties
Possibly with one eye on future shorter revaluation cycles and the need to gather evidence more efficiently, new regulations have also been introduced to assist with gathering market information. Importantly, ratepayers need to be aware that the penalty regime that accompanies the late or non-return of rental information requested by the assessor is potentially extremely punitive.
These penalties will be based on a percentage of rateable value, starting at £200 or 1% of rateable value from 28 to 69 days, whichever is greater; £1,000 or 20% from 70 days to 83 days; and £1,000 or 50% from 84 days on. The fines are cumulative: after 84 days, the actual percentage penalty would be 71%, adding the 1%, 20%, and 50% fines together. To put it in context, the owners of a building with a rateable value of £1m could face a fine of £710,000 if a request for rental information was missed for 12 weeks.
The mechanics behind how this will be administered in practice are still to be seen, but the assessor can request the necessary rent; turnover, in the case of trading assets; or costs, for new-builds and refurbishments from any person it believes is a proprietor, tenant, or occupier of a building. Crucially, the assessor can also serve notice to “any other person” it believes has the information required – which could stretch to outsourced staff and property agents.
More changes to come
There are other changes to consider too. From 2024, local authorities may be given the power to set the annual rate poundage in their areas, moving away from the uniform business rates. Landlords may also want to consider the proposed changes that affect vacant buildings. From 1 April 2020 the reset period for empty property relief has been extended from six weeks to six months, while relief for listed buildings will likely be restricted to two years from April 2022. Secondary legislation may be in the offing to amend this – the full details are still to be refined.
There are inevitably more changes to come – given recent events, no doubt those outlined will be amended in some way too and it is therefore critical that everyone with an interest in property keeps up with any new announcements.
Iain McGhee is a partner in the valuation and advisory team at Knight Frank LLP Glasgow
