1. Business Rate Avoidance
Presented by:
Gordon Heath BSc IRRV (Hons)
for
IRRV East Midlands Association

2. Empty Rate – History in England
City of London Sewers Act half the general rate, not the poor rate, hence about 10%, no free periods, City of London only.
Local Government Act discretionary 50% empty rate, with 3 months free period and various exemptions
1974 – discretion increased to 100% empty rate
Rating surcharge – soon abolished
industrial exemption, 50% limit on empty rate
compulsory 50% empty rate with exemptions
compulsory 100% empty rate, exemptions changed
Imposed by Gordon Brown and Alistair Darling in England and Wales but not in Scotland
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3. 100% Empty Rate – the Reaction in 2008
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4. 100% Empty Rate – the Reaction
Coincided with the 2008 credit crunch
Ratepayers not very happy
Properties demolished
New starts and completions delayed
Innovative methods of avoidance
Meanwhile uses of empty buildings
Relief given for small empty properties in 2009/10 and 2010/11
Contributed to losing the 2010 General Election ?
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5. Purpose of 100% Empty Rate?
Meanwhile Project set up in 2009 by last Government
Led by Development Trusts Association
SQW Consulting - business case
Meanwhile uses of otherwise empty buildings for socially beneficial purposes
DCLG guidance on suitable sub-leases
Also planning changes to make change of use easier
Is it about empty rate revenue or encouraging use?
Effect of local rates retention on authorites’ attitudes?
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6. The Right to Minimise Tax Liability
The Westminster Principle
Inland Revenue Commissioners V Duke of Westminster 1936 (H. of Lords)
Payments to domestic employees by deed of covenant that amounted to renumeration
House of Lords refused to disregard the character of the deeds merely because the same result could be brought about in another manner
Principle applies to any form of direct taxation
Arrange the use of empty property to avoid empty rate
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7. The Right to Minimise Tax Liability
Lord Tomlin “Every man is entitled if he can to order his affairs so as that the tax attaching under the appropriate Acts is less than it otherwise would be . If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of the Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
Lord Atkin “It has to be recognised that the subject whether poor and humble or wealthy and noble has the legal right to dispose of his capital and income as to attract upon himself the least amount of tax”
BUT this case only avoided a single avoidance step
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8. The Right to Minimise Tax Liability
The Ramsay Principle
W.T. Ramsay Ltd v Inland Revenue Commissioners 1982 (H. of Lords)
Company made a large capital gain and entered into a series of self cancelling transactions to generate an artificial capital loss and avoid CGT
Where a transaction has pre-arranged artificial steps which serve no commercial purpose other than to save tax, then the proper approach is to tax the effect of the transaction as a whole – referred to as the Ramsay Principle
BUT it is limited to a series of self cancelling financial steps
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9. The Right to Minimise Tax Liability
Furniss (Inspector of Taxes) v Dawson D.E.R., Furniss v Dawson G.E., Murdoch v Dawson R.S (H. of Lords)
Selling family company shares – a pre-arranged plan to exchange shares for shares in a newly formed investment company that immediately sold the family shares at an agreed price.
CGT exemption applies to company amalgamation and there was no gain or loss by investment company
Steps inserted in a preordained series of transactions with no commercial purpose other than tax avoidance should be disregarded for tax purposes, notwithstanding that the inserted step had a business effect
Significant extension to Ramsay Principle
Now applies to a linear series of financial transactions
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10. Empty Rate Avoidance
Most empty rate avoidance either relies on a series of occupations for six weeks or the granting of an exemption
The Westminster Principle establishes a right to minimise tax
The Ramsay Principle, as extended, enables artificial financial transactions to be ignored.
Can the Ramsay Principle be extended to occupying premises ?
Perhaps, but it goes beyond the existing decisions
It requires a High Court decision
We already have case law on rateable occupation
We have new case law on empty rate avoidance
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11. Rateable Occupation
John Laing & Son Ltd v Kingswood Area Assessment Committee 1949 (Court of Appeal)
London County Council v Wilkins 1956 (House of Lords)
Four elements of occupation
1. it must be actual
2. it must be exclusive to the occupier
3. it must be of some benefit to the occupier
4. it must not be for too transient a period
SI 2008/386 reg. 5 prescribes that no further rate free period applies if occupation is less than 6 weeks
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12. Rateable Occupation Rateable occupation is a question of fact
Further periods of relief are allowed
There is nothing in the regulations that prevents a ratepayer from repeatedly occupying for 6 week periods to claim repeated empty periods
Key test is probably beneficial occupation
My suggested question “Ignoring the empty rate saving, would the ratepayer be prepared to pay a rent to obtain that benefit from the occupation?”
No requirement for rent to be passing
Paramount Occupation – Legal occupier is not always
the same as the actual occupier
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13. De Minimis Occupation There is no “de minimis” rule in the legislation
Wirral BC v Lane 1979
Empty House undergoing building works - No overnight stays
Most goods removed but use of telephone
Cumming-Bruce LJ “the magistrates …….. decided to apply the maxim de minimis non curat lex to these valuable chattels.”
“on the facts found by the magistrates, they could have very well come to the opposite conclusion”
“I am not prepared to hold as a matter of law that the magistrates were not entitled thus to relegate these objects to a lowly grade of value or importance”
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14. Plant, Machinery and Equipment
LGFA 1988 s 65(5) - “Plant, machinery and equipment….which was used…. or is intended for use…” can be ignored
Sheafbank Property Trust PLC v Sheffield MDC 1988
A disused sports ground and premises was held to be unoccupied because it only contained plant, machinery and equipment that were last used on the premises
Items included a snooker table, music facilities, tables, chairs, the bar and associated equipment, freezer, dishwasher, kitchen items, TV, refrigerator, settee, grass cutting equipment
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15. 6 weeks Occupation
Sheffield City Council v Metis Apartments Limited Magistrates’ Court
THIS IS NOT A LEGAL PRECEDENT
THERE IS SUBSEQUENT CASE LAW
13/8/09 - moved boxes of files from head office and storage to 3 empty properties
8 or 9 boxes in each property
2/10/09 - moved back to head office
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16. 6 weeks Occupation 12/2/10 - moved boxes back in
20 to 27 boxes in each property
27/4/10 - moved back to head office
Council informed at every stage
Claimed benefit - reducing storage costs, enabling access, freeing up office space
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17. 6 weeks Occupation
The District Judge said “I am of the view that in all the circumstances of this case, there has not been rateable occupation for the relevant periods when the boxes were placed at the three properties. There was no actual occupation. The use of the properties in the way described and photographed was so minimal. It is beyond slight in the sense that it is de minimis.
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18. 6 weeks Occupation
Beyond placing the boxes of files at the three properties, there is little evidence of the use to which they were put, or of the frequency of access or reference to them. They are boxes containing archived files. It occupied a very small percentage of the available floor areas.”
Liability order granted
Not appealed
Not a legal precedent
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19. 6 weeks Occupation
Makro Properties Ltd and Makro Self Service Wholesalers Ltd v Nuneaton and Bedworth BC 2012
Decision given on 29 June 2012
Appeal against liability order granted in the Magistrates’ Court
Former cash and carry warehouse used for temporary storage
Rowleys Green, Coventry
0.2% of floor space of 140,000 sq.ft.
Storing16 pallets of documents
Between November 2009 and January 2010
Sufficient to trigger a further 6 months rate free period
Would an appeal in Sheffield have succeeded ?
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20. 6 weeks Occupation
Ratepayers should tell the billing authority when they occupy for 6 weeks to enable inspection and makes sure it is occupied - then tell the authority when it is vacated
Under LGFA 1988 s65(5) plant, machinery and equipment that was used or is intended for use should be ignored
Includes shop fittings, counters and shelves
Could include desks and chairs
More than “de minimis” occupation
0.2% occupation appears to be sufficient
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21. 6 weeks Occupation Occupation by empty boxes - not occupied
Occupation by a few boxes of files – probably occupied, given the 2012 Makro decision
Occupied by tents - where is the benefit?
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22. 6 weeks Occupation – Blue Tooth
Occupation by a small electronic box broadcasting messages on blue tooth
Not in occupation if it is just a “ to let” advertisement !!
Occupied - if the occupier is paying a rent and is being paid to broadcast messages - appears to be beneficial, actual and exclusive
It does not matter if it is a lease, licence or an easement
Does it matter if no rent is passing?
Paramount control remains with the landlord if he controls the use of the hereditament - not merely the access
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23. 6 weeks Occupation – Blue Tooth
Could it be valued as a communication station? - 6 weeks is probably too transient
Is the occupation “de minimis”? - probably not if the ratepayer is obtaining benefit by broadcasting
It’s not the size of the equipment that determines if a benefit is being obtained from the occupation
If the only benefit is avoiding empty rate, that is not beneficial occupation
There must be a beneficial use
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24. Occupation Prohibited
Occupation Prohibited By Law where an empty property contains asbestos ?
Asbestos surveys sent with the requests detailing varying levels and types of asbestos
Just because an empty property has asbestos in it this does not mean it can’t be occupied
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25. Occupation Prohibited
Not an issue when occupied but when empty it may be difficult to refurbish for a new tenant
Regent Lion Properties Ltd v Westminster City Council Notice under Health and Safety at Work Act refurbishment must cease until asbestos removed
Not only asbestos - Construction (Design and Management Regulations) 2007
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26. Letting to a Charity
Letting to a charity only works if the charity occupy or intend to occupy it for charitable purposes of THAT charity (or that charity and others)
If there is no intention for the charity to use it for a charitable purpose, the charity will be liable for 100% charge
Occupation of only part is sufficient to establish liability
If it is occupied, it must be wholly or mainly used for charitable purposes to qualify for relief
All of the hereditament - not just all of the use made?
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27. Letting to a Charity
English Speaking Union Scottish Branches Educational Fund v City of Edinburgh Council 2009
Judicial review of refusal of mandatory relief
Tenants of whole building - 8 floors -only used the ground floor - must be wholly or mainly used
Ratepayer - wholly used for charitable purposes
Council - only partially used
Council’s argument is consistent with the ordinary meaning of the language used in the legislation
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28. Letting to a Charity – Blue Tooth
Letting to a charity that occupies with a bluetooth box broadcasting charitable messages
Evidence of broadcasting ?
Is it a charitable purpose ?
Occupation of all or part is sufficient to establish rateable occupation
Everyone knows the 4 elements of occupation in the John Laing case - that’s not the point
Charitable relief ONLY applies where it is wholly or mainly used by that or that and other charities
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29. Letting to a Charity – Blue Tooth
Could it be valued as a communication station ?
9 months would not be too transient
Some have now been valued at about RV £100
However it must be a separate occupation - not occupied by the same ratepayer as the main hereditament and for the same purpose
Occupied rate on box, Empty rate on remainder
No further 3 months if re-merged
Moving the box around might frustrate this
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30. Letting to a Company in Liquidation
Just one of many examples:
5/8/ Company is formed
1/9/ Company takes 15 leases on empty property in two Boroughs
1/9/ Declaration of solvency
1/9/ Members voluntary liquidation later on the same day - Liquidator appointed
Liability falls on leaseholder in liquidation - exempt from empty rate
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31. Letting to a Company in Liquidation
The are only peppercorn rents and no rate liability - company remains solvent
No creditors to turn the voluntary liquidation into a compulsory liquidation
No pressure to disclaim the leases
No pressure to complete winding up
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32. Letting to a Company in Liquidation
Company wound up 3 months after notice from liquidator to Registrar at Companies House
Remaining leases revert to the Crown as “bona vacantia” - vacant goods
Treasury Solicitor Bona Vacantia Division
Crown accepts no liability - landlord not entitled to possession and therefore not liable
No one is liable
Within a year the Crown will disclaim the leases and the landlord will become liable from then
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33. Letting to a Company in Liquidation
Various companies referred to the Companies Investigation Unit of the Insolvency Service
Following investigations - IS presented petitions to wind up companies on 31 May 2011
27 July Companies wound up in the High Court
29 July - Insolvency Service press release
Scheme initially used for own properties but in April 2009 extended to approximately 100 third party landlords
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34. Letting to a Company in Liquidation
Scheme avoided £8.9M empty rate
Generated a fee income of £1.4M
Companies never traded - no liquidator
Investigating Supervisor “In making the decision to wind-up these companies, the court is sending a clear message that schemes which abuse the insolvency regime to avoid paying business rate liabilities are not acceptable”
Companies and directors listed in press release
BUT IT IS STILL HAPPENING – because it works?
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35. Instant Rate Saver Plan
As advertised by articles in “Property Week”
Environmental charity - Healthy Planet
Healthy Planet sign a short term lease with a retail landlord to install posters advertising its work in shop windows in return for a donation
Landlords benefit by avoiding empty rate
Charity said the initiative “would help landlords to cut their empty rates bills, improve the look of empty shops, and help the charity”
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36. Instant Rate Saver Plan
May improve the look of vacant shops
CLG has given money to some authorities to use vacant shops
Could ask VO to split assessment between shop and advertising right, BUT- it is only a separate hereditament if there is a separate lease for the advertising right
Is the charity in beneficial occupation by virtue of the posters in the window? - not in my opinion
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37. Instant Rate Saver Plan
Charity exemption from empty rate only applies if it appears that when next in use it will be used by that charity or that charity and others for charitable purposes
If it is not the case - 100% liability remains
Are free standing advertising boards inside the windows occupation?
Is advertising a charitable purpose?
Is it mainly used for a charitable purpose?
Have some local authorities given relief?
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38. Instant Rate Saver Plan
Article in FT Nov Charities paid by retailers in rates deals
JJB Sports and Blacks Leisure confirmed that they have paid charities to occupy empty shops
9,000 charity shops % increase since 2008
Charity Commission considering issues - concerns would be whether decisions to occupy are to further charitable purposes and any benefit to the landlord is incidental
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39. Instant Rate Saver Plan
Article in FT Nov Treading a fine line between “scam” and “service”
Healthy Planet being paid to “occupy” about 60 empty shops by posters in the windows
Also operates 13 “Books for Free” shops
HMRC has “taken issue” with Healthy Planet’s 2010 accounts
Donations increased from £13,000 to £1.1M in one year
However it seems that it was Healthy Planet that approached HMRC, which is not the impression given by the article.
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40. Instant Rate Saver Plan
HMRC - payment in return for occupying an empty shop is not really a donation
Healthy Planet has now paid several thousand pounds in tax
Intend to turn all shops into “Books for Free” shops
3Space also receives donations for occupying shops but lets community groups use them for nothing
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41. Part Occupied Relief under section 44A
It is at the Local Authority’s discretion
The discretion is exercised when the Local Authority applies for an RV apportionment
The Valuation Officer must give it
The Authority must operate it
It must appear to the Authority that part is unoccupied and will remain so for a short period
CLG: Non-domestic rates: Guidance on rate reliefs for charities and other non-profit making organisations - updated June 2009
Can be successive periods
Phased occupation/vacation
Depends on RV of empty part
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42. Section 44A CLG Advice
It is not intended that section 44A be used where part of a property is temporarily not used or its use is temporarily reduced ….. Instead section 44A is aimed at situations, for example, where there are practical difficulties in occupying or vacating a property in one operation …. and it is phased over a number of weeks or months. In such cases it would be reasonable to reduce the liability on that part of the property which is unoccupied. Similarly, where a building or buildings on a manufacturing site become temporarily redundant it might be reasonable to take the unoccupied part of the property into account rather than levy full rates on the whole property.
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43. Section 44A CLG Advice
So, for instance, where the rateable value of the apportioned, unoccupied part of the property is below the relevant threshold no rates will be payable on that part until the end of the operative period (see further paragraph 8.2.7). It should be noted that the threshold has been increased from £2,200 to £15,000 for a one year period covering the 2009/10 business rates year …
Threshold £18,000 for 2010/11
Automatically reverted to £2,600 in 2011/12
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44. Telephone Masts Valued as “Communication Station (and Premises)”
Valued on rent for site plus any plant and machinery
VO will not TOR unless incapable of beneficial occupation
Entry in the list does not prove occupation
Not the same as an advertising right where the right is rated
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45. Telephone Masts Kennett v British Telecom. 1983 (H. of Lords)
Exchange in occupation as soon as some equipment moved in
LGFA 1988 s65(5) - can ignore plant and machinery
If equipment switched off and disconnected it can be ignored
No beneficial occupation - grant empty allowance
N.B. There is no empty rate liability because a telephone mast is a structure, not a building
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46. Relevant Hereditament
SI 2008/386 - unoccupied property regs.
Relevant hereditament for empty rate liability - building (or part) or building (or part) plus land
Communication station is a structure not a building - outside the definition of hereditaments subject to empty rate
Similarly no empty rate on land including surface car parks and land used for storage
This is not empty rate avoidance, they are simply not subject to empty rate.
There is no empty rate on an advertising right because it is defined in the regulations to be occupied while there is a rent
being paid for the right and when this stops it should
be taken out of rating
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47. Duty to Bill as Soon as Practicable
Encon Insulation Ltd v Nottingham City Council 1999
Regentford Ltd v Thanet District Council 2004
R (on the application of L. B. Waltham Forest v Waltham Forest Magistrates’ Court (Re:Yem Yom Ventures Ltd) 2008
JJB Sports plc v Telford & Wrekin Borough Council 2009
The North Somerset cases 2010
Specific requirement in regulations
Can go back to 1 April
Probably back into last year
Only earlier if the billing authority has taken all reasonable steps
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48. Duty to notify the VO
Secerno Ltd, Sportsworld Ltd & Xou Solutions Ltd v Oxford Mag. Ct. and Vale of White Horse District Council 2011
High Court (QBD) Administrative Court
[2011] EWHC 1009 (Admin)
27 January 2011, London
Judicial Review
Liability Orders granted 25 November 2009 in Oxford Magistrates’ Court
No dispute on occupation by ratepayers, entries in the list and correct demands
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49. Duty to notify the VO
Alleged that the Council had been in breach of its statutory duty to notify the VO of information relating to entries in the list
LGFA 1988 Schedule 9 para. 6(1A)
Reg. 42 NDR (Alteration of Lists and Appeals) (England) regulations 2005/659
Now replaced by 2009/2268 reg. 24
Duty to supply information to the VO as soon as reasonably practicable
Failure to supply information to the VO on time resulting in list not being altered as soon as it could have been
Caused difficulties to ratepayers
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50. Duty to notify the VO
Ratepayers claim Magistrates should have refused liability orders
Statutory duty not just obligation
Failure to serve a demand as soon as reasonably practicable in accordance with 1989 Collection and Enforcement regulations does result in invalidity if the ratepayer would suffer prejudice
Ratepayers claim that failure to notify the VO of information resulting in delay leads to prejudice and therefore invalidity
Cannot go behind the list – R (Vitesse Networks) v NW Wiltshire Mag. Ct. 2009
Appeals regulations have nothing to do with collection and enforcement
Concerned with content of Local List
Reg. 42 is an irrelevance
Liability Order correctly granted
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51. The Future Local Rates Retention from 2013
Local authorities gain from increased local rate income AND suffer the cost of reduced local rate income
More inspections
Tougher line on evasion
Less discretionary relief?
Encourage local business development
Current review of empty rate by 7 MPs
Possible 3 year exemption for new developments ?
Possible full rate relief for low RV properties ?
Impact assessment of empty rates ?
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52. Conclusions Empty rate avoidance is legal – Westminster principle
The Ramsay Principle is a “red herring”
De minimis occupation can be ignored
S65(5) occupation can be ignored
Minimal occupation is sufficient
Beneficial Occupation is the key issue
Paramount Occupation – Legal occupier v actual occupier
Local Rates Retention in England may encourage more effort
A reduction to 50% empty rate would not reduce avoidance
Government has helped with avoidance
Notifying the VO is irrelevant
Bill as soon as practical
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