Non-domestic rates reform: analysis of responses to consultation on Barclay implementation

Analysis of responses to our consultation on accepted recommendations requiring legislation that came out of the Barclay Review of non-domestic rates. The consultation ran from 25 June until 17 September 2018.

1. Executive Summary


1.1. Over the period from July 2016 to August 2017, the Government commissioned Ken Barclay to lead an independent review on the non-domestic (business) rates system in Scotland. The Review's report was published in August 2017 and contained 30 recommendations, grouped under the following headings:

  • measures to support economic growth;
  • measures to improve ratepayer experience and administration of the system;
  • measures to increase fairness and ensure a level playing field.

1.2. Several Barclay Review recommendations can be implemented administratively but others require the Government to bring forward legislation. On 14 December 2017 the Scottish Government published an implementation plan, including responses to all 30 recommendations. It also set up an Implementation Advisory Group which helped design a consultation on the implementation of the Barclay Review recommendations the Government accepted to consider.

1.3. The consultation was launched on 25th June and ran until the 17th September 2018 and sought views only on those recommendations which the Government's Implementation Plan identified as requiring primary legislation (Recommendations 1, 2, 5(b), 13, 16, 18, 19, 20, 21, 22, 24, 25, 26, 27 and 30).

1.4. The consultation consisted of 26 open questions. A total of 148 responses were received, 124 from organisations and 24 from individuals.

1.5. This report presents an analysis of the responses to this consultation. It is important to note that this only presents the views of those who chose to respond to this consultation.

1.6. The respondents were placed into eight categories; Businesses; Chartered Surveyors (Private Sector); Independent Education Sector; Individuals; Local Authority / Local Authority Association / Local Community; Other Public Sector and Third Sector; Private Sector Professional / Representative / Trade Body, and; Valuation Board / Assessors / Related Representative Organisation. Table 1 shows the breakdown of categories. Summary terms used to refer to each category are in parentheses and throughout the report the term Local Authority is used interchangeably with the term Council.

Total Breakdown of Respondent Categories

Respondent Category Number of Responses
Businesses (Businesses) 13
Chartered Surveyor (Private Sector) (Chartered Surveyors) 5
Independent Education Sector (Independent Education Sector) 17
Individual (Individuals) 24
Local Authority / Local Authority Association / Local Community (Local Authorities) 29
Other Public Sector and Third Sector (Other Sector) 6
Private Sector Professional / Representative / Trade Body (Representative Bodies) 47
Valuation Board / Assessor / Related Representative Organisation (Assessor) 7
Total 148

Recurring Themes

1.7. A recurring theme in the consultation responses was that proposed changes to non-domestic rates policy, and consequent legislation, needed to be clearer. Consistent calls throughout the responses highlighted the necessity for clarity in definitions, such as: "new build", "exceptional circumstances" and the timescales of procedures (e.g. appeals). Some responses called for further consultation after legislation had been drafted.

1.8. In addition, respondents referred to the necessity to maintain fairness across Scotland and the UK. These concerns were particularly prevalent in responses to the questions relating to the proposal to allow Councils to implement pilot schemes to levy additional rates supplements on certain ratepayers, and in responses to the questions relating to modifications to tax reliefs schemes.

1.9. A more detailed summary of responses to each of the questions covered by this analysis is presented in the table below.

Summary Analysis Table


Views on Recommendation

Main Arguments For and Against/ Further Comments

R1: Business Growth Accelerator (BGA)

Q1: What are your views on how the growth accelerator and new unoccupied build should be treated in legislation?

The BGA is supported by all respondent groups

  • Primary legislation offers certainty over the existence of the relief and better encourages investment
  • Primary legislation could streamline the process and create consistency across Scotland
  • Concerns over time parameters of the 12 month delay with suggestions that it could be made available for up to five years
  • Calls for clarity over 'new build' definition
  • Concerns that if a new-build is not entered into the roll until first occupied, the roll would not reflect existence of properties
  • Calls for clarity over who is responsible for the practical application of the BGA, local authorities or Assessors

R2: Three yearly revaluations

Q2: Do you have any comments on three yearly revaluations?

Generally positive

  • Three yearly revaluations would reflect current market conditions more accurately
  • Three yearly revaluations could reduce appeals from 'Material Change of Circumstances'
  • Concerns over the appeals system and revaluation cycle being out of sync.
  • Concerns that a shortened appeal timetable would increase workload for Assessors and reduce timescales for appeals
  • The next revaluation will be in 2022, which is out of sync with England and Wales and may put Scotland at a disadvantage

R5(b): Pilot scheme to increase rates out-of-town

Q3: From 2020 a small number of pilot Councils will have a new power to increase rates paid by out of town or predominantly online businesses.

a) Do you agree or disagree with putting in place safeguards?

b) Please explain your response to (a) including what the safeguards should be if you agree they are required.

General support that safeguards would be needed

Most popular safeguard was a statutory cap on the levy

Lack of support from businesses and their representatives

  • Support for the four safeguards proposed[1]
  • The pilot scheme was seen to be unfair to certain businesses e.g. Garden Centres
  • Concerns that the Levy may make Scotland less competitive than other parts of the UK
  • Calls for clarification on 'out-of-town' and 'predominantly online' definitions
  • Highlighted the need to consult further to ensure all views were being heard and proposals were in the interest of all parties

Q4: Do you have any comments on the criteria and process which should be used to assess the pilot scheme(s)?

Main point raised: there should be quantifiable evidence of Levy impact on town centre e.g. audit trail

Other criteria suggested:

  • Studies of wider local economy of affected areas
  • Evaluation of the scheme over a set time period
  • Consultations both before and after Levy

It was emphasised that pilot administration must be consistent and transparent

R13: Greater information gathering power for Assessors

Q5: What level(s) should this civil penalty be set at?

The penalty should be set above administration costs

  • The time period to supply requested information is too short, with preference to emulate the English system of 56 days
  • Assessors believe there needs to be a system reform in order for the change to a civil penalty to be effective
  • General support in favour of a civil penalty, however Businesses were opposed due to the complexity of the existing system

Q6: How should the penalty be set? Should it be a fixed penalty or proportionate to / banded by rateable value?

There was widespread support for a scaled penalty, although Businesses tended to prefer a fixed penalty and Chartered Surveyors had mixed views

  • Chartered Surveyors suggested there should be a fixed maximum penalty

Q7: Do you have any views on who is responsible for administering the penalty and the process for appeals against the penalty notice?

Assessors should be responsible for administering the penalty

Valuation Appeals Committees (VACs) should be responsible for appeals

  • There was conflation between the use of VACs and Independent Bodies
  • Calls for an independent body to be created which could administer the penalty
  • Potential for the Local Authority to issue the penalty
  • Assessors focused on making the appeals system effective

Q8: Which organisations/ individuals should be required to supply necessary information to the Assessors where applicable?

The main view was that ratepayers should be responsible for supplying information to the Assessor

Other suggestions included:

  • the 'property owner' and 'all bodies'
  • Some responses indicated that current legislation which requires the 'Proprietor, Tenant or Occupier' to provide information is sufficient

R16: Civil penalty for non-provision of information to Councils by Ratepayers

Q9: What level(s) should this penalty be set at?

Needs to be large enough to act as an incentive to supply information

  • The penalty should be sufficient to offset any administration costs
  • The penalty should be a 'de-minimis figure' upward of £500, to incentivise supply of information
  • Chartered Surveyors (private sector) believed there should be a maximum level for the penalty

Q10: How should the penalty be set? Should it be a fixed penalty or proportionate to / banded by rateable value?

The main view was that the penalty should be proportionate to / banded by rateable value, however, a number of Representative Bodies, Businesses and Local Authorities advocated for a fixed penalty

Other suggestions included:

  • The penalty should increase with each failure to supply
  • If the penalty is proportionate to / banded by rateable value there should be a lower threshold to recover administration costs

Q11: Do you have any views on who is responsible for administering the penalty and the process for appeals against any penalty notice?

The Local Authority should administer the penalty and the appeals

  • A number of Businesses, Representative Bodies and Chartered Surveyors preferred an Independent Body to administer penalties
  • A number of responses indicated the VAC and an Independent Body should be responsible for appeals
  • Chartered Surveyors were split between an Independent Body and the VAC

Q12: Should this be a mandatory penalty or one that the Council has discretion over (please indicate your preference and add any comments)?

The dominant view was that the penalty should be discretionary

A small number of Local Authorities, Businesses, Chartered Surveyors and Individuals favoured a mandatory penalty

  • Various responses indicated the penalty could have both a mandatory and a discretionary element (e.g. there is potential for the penalty to be mandatory but discretion to be applied in the appeals process)

R18: Councils can initiate debt recovery at an earlier stage

Q13: How should the debt recovery changes be communicated to ratepayers?

The Scottish Government should be responsible for communication

Suggestions included via:

  • Non-Domestic Rates annual bill/billing process
  • A written notification
  • Trade/business associations correspondence with membership
  • Press releases

Q14: What are your views on whether Councils should retain a discretion over debt recovery to allow for any extenuating circumstances?

Councils should retain discretion to allow for extenuating circumstances

  • Responses indicated that extenuating circumstances should exist in any fair taxation system
  • It was perceived that Councils will have a greater understanding of local issues and they are best suited to exercise discretion for this reason
  • It was argued that Council Tax allows for extenuating circumstances so non-domestic rates should too
  • Concerns were raised that discretion may create inconsistencies between local authorities in Scotland

R19: Reform appeals system

Q15: How should this change be communicated to ratepayers?

The Scottish Government should be responsible for communication

Suggestions included via:

  • Non-Domestic Rates annual bill/billing process
  • Social media/websites
  • Press releases
  • A written notification
  • Trade/business associations correspondence with membership
  • It was suggested that the change to the appeals system could be communicated jointly with changes to debt recovery (Q13)

Q16: Do you have any points about the change to allow valuation appeals to increase?

General agreement that appeals should allow valuations to increase

Most Chartered Surveyors (private sector) did not express an opinion

Various implementation concerns were raised. These included:

  • inconsistencies in valuation of properties
  • unclear methodology with regard to valuation decisions
  • potential threat of appeal increases creating a disincentive to small businesses to appeal when they may be eligible for lower rates
  • calls for clarity of methodology and timescale of appeals

A number of responses highlighted that Assessors already have the power to increase a valuation, where an error has come to light, under Section 2 of the Local Government (Scotland) Act 1975, however some noted the legislation may need revised to fully enable this proposal

R20: General Anti-Avoidance Rule (GAAR)

Q17: When the General Anti Avoidance Rule is introduced, do you have any recommendations or principles that this should encompass?

General support for GAAR

Recommendations and principles included:

  • Creating measures that specifically target existing loopholes, such as phoenix companies
  • Including a statement in GAAR of who the liable party is for any avoidance
  • Sharing data with other Councils and Her Majesty's Revenue and Customs (HMRC) in annual reviews, this could raise awareness of potential new loopholes and help prevent avoidance

Responses called for clarity over definitions and guidance on general rules

Q21: Close empty property relief loophole

Q18: How do we raise awareness of this change among ratepayers?

The Scottish Government should be responsible for communication

Suggestions included via:

  • Non-Domestic Rates annual bill/billing process
  • Social media/websites
  • Press releases
  • A written notification

Responses advocated for mixed methods of communication, not expressing preference of one over another

Q19: Do you have any further comments around the 6-month reset period for empty property relief?

There were mixed views towards the 6-month reset period. Local Authorities and Representative Bodies were in favour of the change; Chartered Surveyors and Businesses were opposed to the change

  • A 6-month reset period would be more effective than the current 42-day reset period and benefit the economy
  • Businesses indicated that the 6 month reset period would be out of line with England and Wales' 42-day reset period and therefore reduce Scottish competitiveness in the UK

A number of concerns were raised by those against the 6-month reset period. These included:

  • How changes to the reset period for empty property relief would affect other reliefs and exemptions. Further consideration of this change was called for
  • Current short-letting market trends are not reflected in the new policy
  • The 'discontinuous' nature of the reset period, with respondents asking for clarity over whether it would be contained to a calendar or financial year
  • Lack of clarity over definitions e.g. 'meaningful occupation' and 'empty'

R22: Close Small Business Bonus Scheme loophole (self-catering)

Q20: Should there be any local discretion in the application of this policy?

There was no consensus on whether discretion should be applicable

  • Representative Bodies, Businesses and Individuals were in favour of discretion
  • Chartered Surveyors and Assessors were against local discretion
  • Local authorities were split in their response

Q21: If your answer to Question 20 is yes, under what circumstances should this discretion apply?

Responses mentioned "extenuating" or "exceptional" circumstances as a criterion for local discretion, providing those circumstances are outwith the ratepayers' control.

Respondents identified that "extenuating" and "exceptional" circumstances could include:

  • Natural hazards e.g. landslides
  • Seasonal / environmental circumstances e.g. limited travel to outer islands, restricted by weather or seasons
  • Personal circumstances e.g. bereavement

A number of issues were raised:

  • There may be difficulty validating evidence of intention to let and actual let
  • Potential for this policy change to be unfair on the micro-hospitality sector. Calls for this policy change to be paused until the Scottish Government has finished its investigation into potential short-term letting regulations
  • Local discretion may create inconsistencies across Scotland
  • The Barclay Review does not indicate whether the 70 day letting criterion is within a financial, rolling or calendar year

Further suggestions were:

  • Potential to emulate the Welsh system: flexibility of the 70 day criterion across following years. E.g. properties must meet the multiple of 70 days over three or five years
  • Self-catering businesses could be included on the Council Tax register

R24: Reform charity relief

Q22: How should independent schools with exceptional circumstances such as specialist music schools be treated?

Schools should not be treated differently if they are specialised, independent or state run, especially if they support children with additional needs

  • There should be parity across all schools who support children with additional needs
  • Further consultation was called for to determine criteria and define "exceptional circumstances"
  • Independent schools highlighted that this recommendation unfairly targeted them and may unfairly benefit some schools
  • The Scottish Charity Regulator highlighted that treating certain independent schools differently to others could create a 'two-tier' charity system
  • A discretionary scaled relief was suggested as an alternative to removal of relief to make relief proportional to the recipient
  • Respondents wished they had been allowed to comment on Arm's Length External Organisations (ALEOs)

R25: Restrict relief to properties in active occupation

Q23: How should active occupation be defined?

The three criteria suggested in the Barclay Implementation Consultation Paper were the most popular criteria for definition of active occupation:

  • floor space used
  • accessibility to the public and/or Council
  • demonstration of accounts for a business in operation at the property

Additional criteria included:

  • Physical evidence of a business being run from the property
  • Providing a service or being used to support active use of another property

Other points raised:

  • The GAAR may be the best route given the complexities of defining occupation
  • Chartered Surveyors believe active occupation is not a viable strategy when determining if rates relief should be granted
  • Agreement to remove charity relief from properties that are no longer occupied by a charity

R26: Reform empty property relief (listed buildings and surcharge)

Q24: What are your views on whether Councils should have discretion in the application of this measure for properties, so that local circumstances can be accounted for?

General support for discretion

  • Local discretion would allow unique local circumstances to be considered
  • Local discretion may create inconsistencies across Scotland

Implementation concerns included:

  • Potential increase in derelict buildings
  • If the ratepayer has multiple properties across jurisdictions, they may be eligible for relief in one jurisdiction and not another
  • It may penalise owners of listed buildings
  • Some independent schools are listed buildings, removing relief would financially burden the school

Further suggestions included:

  • Relief to only be removed on certain classifications of listed building as some cannot be brought back into active use.
  • A four or five year timescale would be more feasible as the two year timescale is not viable to get a vacant listed property back on the market

R27: Sports relief for affordable community facilities

Q25: How should affordable / community sports facilities be defined?

Suggestions from the Barclay Implementation Consultation Paper were met with general agreement

These were:

  • inclusive and transparent membership policies

  • membership fees below a certain threshold
  • availability of the facilities to the local community or other criteria

Concerns included:

  • "affordability" and "community benefit" are both subjective concepts, they need to be defined in order for the proposed criteria to be successful

Other suggestions included:

  • Using the Community Amateur Sports Club definition as the base of relief exemptions
  • Restricting relief for those facilities which run bars and sell food

  • Independent schools claimed that they should benefit from relief as often their sporting facilities are used for public benefit

R30: Commercial activity on parks

Q26: How should commercial activity on parks be defined?

If the activity is profit raising or fee charging then it should be defined as commercial activity. However, a distinction was recognised between whether the activity charges a fee to cover costs or to raise a profit. If the fee was to cover costs then the activity should be defined as non-commercial.

Other suggestion on how to define commercial activity:

  • Based on the length of time and/or the number activities that take place within a given time period

Further comments:

  • There were calls for non-profit organisations to be automatically exempt
  • It may be better to review language in Section 19 of the Local Government (Financial Provisions etc.) (Scotland) Act 1963 rather than implement new policy
  • There is scope for local authorities to have discretion over commercial activity in their jurisdiction
  • Definitions were highlighted as a concern, e.g. profit raising
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