£250m a year lost through business tax avoidance

A new survey by the Local Government Association has revealed that business rates avoidance is costing local services an estimated £250 million a year.

The local council poll has found that eight out of 10 authorities responsible for collecting business rates do not have adequate powers to tackle the problem in their local area. The LGA is calling for tougher legislation in England to close loopholes and tackle avoidance along similar lines to those proposed in Scotland and Wales next year.

With income from business rates accounting for around a quarter of council spending power, the survey reveals some of the most common methods of business rates avoidance. For example, repeated short-term periods of occupation was the most common method reported by responding councils (37 per cent). This sees businesses minimally occupying a property for around six weeks (42 days) before vacating and being eligible for three months empty property exemption from paying business rates. This can be done multiple times.

Furthermore, 26 per cent of responding councils reported firms using insolvency to avoid paying empty property rates while others reported difficulties in establishing ownership such as claims that another person has taken over a business, false tenancy agreements or phoenix companies where the stock is held in third party names.

Local government currently keeps 50 per cent of business rates income to pay for vital local services, like caring for older and disabled people, protecting children, fixing potholes and collecting bins. This is proposed to increase to 75 per cent from April 2021.

Richard Watts, chair of the LGA’s Resources Board, said: "Business rates are an extremely important source of income for councils and the local services our communities rely on every day. Too many businesses are exploiting loopholes and manipulating the system to avoid paying the tax they owe.

“The scale of business rates avoidance shows more needs to be done to tackle this behaviour and reduce avoidance. Every penny lost through business rates avoidance is money that could be spent on adult social care, children’s services, fixing roads and other vital community services. Councils want to work with government to explore how to better protect the system and the powers needed so they can collect money owed for local services.”