Business Rates & COVID-19

Correct as of 12pm, April 9th. This article is being maintained.

1. Introduction

1.1 Amongst the Government’s recent announcements has been the message that it will be unveiling additional measures to assist ratepayers with business rates during the COVID-19 pandemic. Unsurprisingly, full details of these measures are still to be revealed however we have summarised below the information released to date and its potential effect.Whilst further detail is awaited we have also summarised the current position for ratings liability for unoccupied premises and possible exemptions that might apply in the current climate.

2. Government Measures

2.1 Of the measures recently announced the following are of particular significance to ratepayers:

2.1.1 a business rates retail discount (also being referred to as a business rates holiday);

2.1.2 a business rates grant for retail, hospitality and leisure businesses;

2.1.3 support for nursery businesses that pay business rates; and

2.1.4 a business rates grant for businesses that pay little or no business rates

2.2 Business Rates Retail Discount

2.2.1 In the Budget on 11 March 2020, the Chancellor announced an extension to the existing Business Rates Retail Discount, so that it is extended to 100% and would also apply to occupied retail, leisure and hospitality properties in the 2020 to 2021 tax year. More recently this has been referred to as a Business Rates Holiday.

2.2.2 The Chancellor has announced that there will be no limit of the rateable values of property that can claim this relief.

2.2.3 The government has stated that as this is a temporary measure it will not be introducing new legislation to implement this additional form of relief. Instead, provided the eligibility criteria are met, local authorities will be encouraged to use their discretionary relief powers under s.47 of the Local Government Finance Act 1988.

2.2.4 To qualify for the relief, the premises should be wholly or mainly used for one of the categories listed below:

1. shops, restaurants, cafes, drinking establishments, cinemas and live music venues;
2. for assembly and leisure; or
3. hotels, guest & boarding premises and self-catering accommodation.

2.2.5 A Local Government guidance note entitled Business Rates – Expanded Retail Discount 2020/21 provides an indicative list of the premises included in categories 1-3 above. The guidance note states that this will be a test of use rather than occupation, so premises which are occupied but not wholly or mainly used for the qualifying purposes will not qualify for the relief.

2.2.6 Premises which have closed temporarily due to the government’s advice on COVID-19 should be treated as occupied for the purposes of this relief.

2.2.7 The government guidance note, Business Rates – Expanded Retail Discount 2020/21 indicates that premises that are being used for the following uses will not be considered eligible for the purpose of this relief:

1. financial services (e.g banks, building societies, cash points bureaux de change, short term providers);
2. medical services (e.g. vets, dentists, doctors, osteopaths, chiropractors);
3. professional services (e.g. solicitors, accountants, insurance agents / financial advisers); and;
4. post office sorting offices.

2.2.8 The total amount of government-funded relief available for each property for 2020/21 under this scheme is 100% of the rates bill, after other mandatory or discretionary reliefs have been applied.

2.2.9 The Government has stated that no action is required on behalf of the ratepayer to access the scheme and it will be automatically applied to the next council tax bill in April 2020. However, local authorities may have to reissue bills automatically to exclude the business rate charge, which they will do so as soon as possible.

2.2.10 Ratepayers that occupy more than one property will be entitled to relief for each of their eligible properties.

2.2.11 A new hereditament created as a result of a split, merger or change of use should be considered afresh for the discount on that day.

2.3 Business Rates grant to retail, hospitality and leisure businesses

2.3.1 The government has also announced that a grant worth up to £25,000 will also be provided to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value up to £51,000.

2.3.2 Since the scheme was announced the Government has clarified the level of grant will be determined as follows:-

1. For eligible businesses with a rateable value of up to £15,000 they will receive a grant of £10,000; and
2. For eligible businesses with a rateable value of between £15,001 and £51,000 they will receive a grant of £25,000.

2.3.3 An upper limit of £51,000, would appear to exclude many businesses within these sectors with the apparent intention that this grant is focussed upon smaller businesses outside city centres, where rateable values are likely to significantly exceed this threshold.

2.3.4 On 22 March 2020, the Government released an updated version of its guidance note, entitled “COVID-19: support for businesses”. In that note it gave the following additional information regarding eligibility for the scheme.

1. A business will be eligible for the grant if it is based in England and is in the retail hospitality and/or leisure sector.
2. Properties that will benefit from the scheme will be occupied hereditaments that are wholly or mainly used:
   1. As shops, restaurants, cafes drinking establishments, cinemas, live music venues;
   2. For assembly and leisure; or
   3. As hotels, guest and boarding premises and self-catering accommodation.

2.3.5 At the time of writing, further details about which businesses are likely to fall within these categories has not been published. However, the criteria at 2.3.4(b) above appears to mirror those listed at paragraph 2.2.4 above in the context of the Business Rates Retail Discount. Therefore the more comprehensive list of businesses that scheme will apply to, as listed in the Guidance Note Business Rates – Expanded Retail Discount 2020/21,may prove a useful indicator for how the grants to businesses in the retail, hospitality and leisure sectors will be rolled-out in practice.

2.3.6 Like the Business Rates Retail Discount, no proactive action is required on behalf of the ratepayer. The Government guidance note states that the local authority will write to ratepayers that are eligible for the grant.

2.4 Support for nurseries that pay business rates

2.4.1 The Government has announced a business rates holiday for nurseries during the 2020 to 2021 tax year.

2.4.2 The holiday scheme will apply to the following nurseries:-

1. The business must be based in England;
2. The premises must be occupied by providers on Ofsted’s Early Years Register; and
3. The premises must be wholly or mainly used for the provision of the Early Years Foundation Stage.

2.4.3 The Government guidance note is keen to stress that no action is required by the ratepayer. The holiday will be applied to the bills issued in April 2020, however local authorities may have to reissue the bills to exclude the business rates charge, which they will do as soon as possible.

2.5 Businesses rates grant for small businesses

2.5.1 Similar to the grant scheme outlined at paragraph 2.3 above, the Government has also announced that it will support eligible small businesses that pay little or no business rates with a one-off grant of £10,000. The Government guidance note does not specify that the grants will be limited to any particular sector.

2.5.2 The eligibility criteria for these grants have been specified as follows:-

1. The business must be based in England
2. It must be a small business that already receives Small Business Rate Relief or Rural Rate Relief as of 11 March; and
3. It must be a business that occupies property.

2.5.3 As with the other schemes, the government has stressed that there is no action required on behalf of the ratepayer and that the local authority will write to the ratepayer directly, if eligible.

3. Empty Rates Relief: The Current Position

3.1 Whilst further detail is awaited on the financial measures outlined at paragraph 2 above, it would be wise for ratepayers to remind themselves of the current position on ratings relief for vacant properties. At present, ratings relief for vacant properties is governed by section 45 of the Local Government and Finance Act 1988 and the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008 (the “2008 Regulations”). These legislative instruments are complex and difficult to follow even for those familiar with the ratings legislation.

3.2 A broad summary of the position is that where a property is unoccupied, owned by the ratepayer and the property appears on the non-domestic ratings list then unless it falls within a list of exceptions the ratepayer will be liable to pay non-domestic rates on that property.

3.3 The most well-known of these exceptions is sub-paragraph 4(a), which refers to a hereditament, “which, subject to regulation 5, has been unoccupied for a continuous period not exceeding three months.”This is commonly known as “empty rates relief”.

3.4 On 20 March 2020 the Prime Minister announced that pubs, cinemas, theatres and nightclubs, amongst others, would be closed from that evening, with the effect that thousands of premises would be unoccupied for an indeterminate period of time.Whilst the government measures outlined at paragraph 2 above, alongside empty rates relief, will be of comfort to some ratepayers there will undoubtedly be others who do not fall within the requisite criteria. For ratepayers in that position they may benefit from a closer examination of the list of exceptions in the 2008 Regulations and a consideration of whether any of these might apply in the current circumstances.

4. Are Other Reliefs Available?

4.1 Premises subject to forced-closure

4.1.1 In light of recent developments, the exception at regulation 4(c) merits closer scrutiny. That exception refers to a property “whose owner is prohibited by law from occupying it or allowing it to be occupied.” The interpretation of this sub-paragraph has been considered before, on occasions, by the Courts in the context of premises that were either unable to open until a fire certificate had been issued or where a premises was left vacant pending the removal of asbestos following service of a notice under the Health and Safety Act. On both occasions the Courts ordered the circumstances fell within sub-paragraph (c) and no rates were payable.

4.1.2 Where businesses occupy premises which have been forced to close, those ratepayers will benefit from the exemption in regulation 4(c) of the 2008 Regulations.

4.2 Premises allowed to remain open but affected by the Government “lockdown”

4.2.1 For any businesses that have not been forced to close by the Government it could also be worth considering if any of the exceptions might apply given the substantial impact upon their trade. In practice, such circumstances are likely to be rare given that the Prime Minister’s announcement on 23 March 2020 indicated that forced closure will apply to all non-essential shops and thus those that remain open will, by their very nature, likely be in high demand.

4.2.2 In such a situation, it may be that the exception set out in Regulation 4(d) applies. Regulation 4(d) refers to a premises “which is kept vacant by reason of action taken by or on behalf of the Crown or any local or public authority with a view to prohibiting the occupation of the hereditament or to acquiring it”.

4.2.3 Again, it is important to stress that this situation is without precedent and the question of whether ratings relief would apply for premises that escaped the Government’s forced closure is untested. But it certainly seems arguable that the forced lockdown constitutes action taken by a public authority and that premises were kept vacant because of the instruction that the public may only leave their homes for a small number of reasons.If that argument is accepted then the exemption on Regulation 4(d) could provide an additional form of ratings relief for unoccupied premises.

5. Conclusions

5.1 As with all aspects of the current pandemic there is a considerable degree of uncertainty. That extends to the financial support measures proposed by the Government and how a challenge for ratings-relief would be considered by the Courts. It seems inevitable that the Government will release further guidance and detail of the proposed relief schemes and financial support packages shortly. Hopefully such detail will bring further clarity as to how the financial support packages will work in practice and to whom they will apply. If they do not or it subsequently transpires that these measures are not sufficiently wide-ranging, then given the considerable impact of the current government guidance, it seems likely that a challenge for ratings relief will come before the Courts sooner rather than later.