The coalition government has made 42 changes to tax law since it came into power in 2010, as it continues its crusade against tax avoidance. This week it closed a consultation on what it hopes could be number 43.
The Business Rates Avoidance discussion paper, published as part of the Autumn Statement in December last year, calls for ideas on how to stop people using crafty schemes to legally limit their rates bills.
The obvious target at the heart of this crackdown is empty rates avoidance, which has repeatedly come under the spotlight in high-profile court cases on the legality of, for example, whether or not a single filing cabinet constitutes occupation in a large industrial building.
Given the fact that empty rates is among the most loathed of all taxes imposed on property, the British Property Federation’s response to the consultation, which it submitted this week, was unsurprising.
Essentially it argues that the government is asking the wrong question and that empty rates should be scrapped, given the widely held view that the tax fails to achieve its core purpose of stimulating regeneration and instead punishes the owners of property in the most deprived areas and even makes some regeneration projects less viable.
But assuming the oft-repeated plea to repeal the policy will once again fall on deaf ears, there are fears that the avoidance crackdown risks making a loathed policy even worse.
Among the suggestions mooted in the discussion paper is the idea that local authorities be granted more power over withholding business rate relief if they believe it can be reasonably concluded that the main purpose of a ratepayer’s arrangements is financial benefit.
Another idea up for discussion is that occupiers should be forced to notify local authorities about a change of use.
And finally, the discussion paper proposes the introduction of an application process for rates relief, which would also be administered by local authorities.
The BPF’s concerns
Tackling those changes in order, the BPF raises several concerns.
First, it believes that granting local authorities more power to withhold relief risks creating a highly subjective system that would likely lead to discrepancies in how the law is applied across regions, which would create confusion and be unfair.
Second, while the government says it is “mindful of the burdens of increasing administration for businesses”, it gives no indication of how local authorities would be expected to administer the new scheme from their already squeezed budgets.
Instead, the BPF suggests that a “general anti-avoidance rule” could be introduced to cover business rates. This rule is already in place for many other taxes, such as income tax and inheritance tax, and could be modified to cover rates.
Under this system, tax arrangements could be forwarded to an independent panel for scrutiny. The panel would decide if the arrangements “cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions”.
What is reasonable?
However, what is reasonable is open to interpretation, and will inevitably lead to much confusion and inconsistency.
As one Northern landlord who did not want to be named points out, many property owners avoid rates by letting their properties to shell companies which are immediately placed into administration, thereby qualifying for relief.
As devious as this may sound, it is hard to see how this loophole could be closed without jeopardising the urgent need to relieve landlords that are hit by major tenant failures.
And even this case is more clear cut than many.
“Occupiers are always keen to mitigate; it simply makes good business sense,” says Iain Dewar, senior partner at chartered surveyor Wilks Head and Eve. “This is proven by the fact that among the biggest users of mitigation are local authorities themselves.”
Whatever the result of the consultation – and with an election looming whose outcome is also deeply uncertain – it seems likely the courts will prove the ultimate arbiter of any new rules that are introduced.
And given recent high-profile court cases, perhaps the industry can take heart.
The 2012 ruling that saw Makro Properties argue successfully that a pallet of documents covering 0.2% of the floorspace constituted occupation shows how vague rules rarely stand up to scrutiny.
So perhaps the best course of action for any future government will be to adopt the famous Blairite mantra and think about getting tough on the causes of crime instead.
Or as the BPF response puts it: “Where a tax feels fundamentally unfair or penal, there is likely to be greater resistance to paying it.”
