The Barclay Review: What does it mean for you?
The Barclay Review, published on 22 August 2017, set out 30 recommendations to the Scottish Government for improving the business rates system. Rather than a complete overhaul, the proposals would result in modest changes to the current system which will affect ratepayers in different ways.
Broadly speaking, the proposals aim to meet three objectives: (1) support and encourage economic growth, (2) reduce the administrative burden on ratepayers, and (3) increase fairness.
This article summarises the key changes proposed and examines the impact that the recommendations would have on different types of ratepayers should they be implemented by the Scottish Government. It should be remembered that these are simply recommendations, and it remains to be seen if they will be brought into force.
There are certain recommendations which, if implemented, would impact all ratepayers:
At present, revaluations take place every five years, with valuations based on market conditions on a date two years prior (the “Tone date”). This has resulted in a discrepancy between valuations and the current market. This was highlighted in the 2017 revaluation (which was delayed for two years) and resulted in widespread shock for many as rateable values had caught up with the developments in the property market since the crash in 2008.
In order to reduce the shock element of revaluations and to spread the cost more evenly, the Review proposes to reduce the gap between revaluations to three years, with the Tone Date being just one year prior. This would be welcomed by ratepayers and would result in valuations more closely reflecting market trends. It would also reduce the shock of revaluations and allow a more incremental increase and easier management of cash flow for many businesses.
There are 12 recommendations that aim to improve or simplify the system for ratepayers in order that it can be more easily understood. Many have complained that there is a lack of transparency which has led to ratepayers feeling that they have been disadvantaged. The administrative measures include better information provision to improve transparency, to standardise the format of rates bills across all Scottish Councils, to introduce online billing and to modernise the appeals system. If implemented, these changes would improve ratepayer experience and enhance knowledge of how the system works.
Developers and Investors
The Business Growth Accelerator
One of the most welcome proposals is one that will benefit developer and investor businesses and encourage growth. The recommendation is that when an existing property is expanded or improved or a new property built, there will be a 12-month delay before the increase in business rates comes into effect. This would have the positive impact of encouraging owners/tenants to make improvements to their premises and would remove the injustice that sees people being penalised for making improvements. It would also encourage the building of new properties, as the delay will apply whether or not a tenant is found. In the event that a tenant is not found within the 12 month period, empty rates relief would apply, giving the developer time to find a suitable tenant.
Currently, some ratepayers opt to allow occupation of an empty property for a very short period of time. If this period is 42 days or more, this resets the empty property relief period. The Review recommends that this is extended to require six months’ occupation in a year. While this is seen as an anti-avoidance measure (more of these below), there is an argument that this could have an impact on holding costs for empty properties and could potentially disincentivise speculative development.
Some concern may arise from property owners and developers about the loss of the current 100% rates relief for listed buildings if vacant for more than two years and the proposed rates surcharge for properties lying empty for more than five years on the grounds this provides incentives to bring these properties into economic use.
Large businesses will applaud the recommendation that the Large Business Supplement (LBS) be reduced from 2.6p to 1.3p so that it is the same as in England. The rationale behind this is in line with the Scottish Government policy that Scotland is the best place to do business in the UK. Reducing LBS would remove the possibility of businesses being deterred from Scotland due to having to pay increased levels of LBS.
For those who take advantage of loopholes in the current system, the review contains several proposals which would close these gaps.
For example, at present, the Small Business Bonus Scheme is available for those who claim that their second home is being let out as part of a business, resulting in zero rates being payable. The Review recommends that evidence should be required to prove that the property has been let for 70 days of the year and also that the property is available to let for 140 days of the year.
In addition, certain bodies of charitable status will no longer be able to claim relief for rates where their function is not purely charitable. For example, universities which rent out accommodation outwith term time or rent out venues for conferences will be required to pay rates for those periods. Independent private schools will also have a rates liability to bring them in line with state schools. Private fee-paying gyms and leisure facilities and private sports clubs are recommended to no longer qualify for rates reliefs. Some of these proposals, if introduced, will no doubt be seen as controversial.
In summary, the Barclay Review proposes modest changes to the current rates system and stops short of a complete overhaul. The majority of the recommendations are aimed towards improving fairness of the system and reducing shocks when revaluations take place. Perhaps the biggest winners are developers and investors who will welcome the delay of 12 months before their rates increase. However, it remains to be seen whether the Scottish Government will implement the changes and only time will tell what the real impact will be on ratepayers.
This article was co-written by Amie McMurtrie.
Contact our Specialist Real Estate Lawyers
The strength of MacRoberts’ Real Estate Group lies in our depth of market knowledge and experience, and the wide range of skills available to our clients. We have a great deal of experience in commercial and residential property development, property investment, property finance, retail property, leisure and hospitality, and landlord and tenant work. We provide a comprehensive service for real estate professionals and business occupiers.
Sign up to our newsletter to keep up to date with the latest news and developments, and if you require expert advice, assistance or representation in relation to any area of property law, contact our specialists.