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Abandoned shops as the high street collapses
istock_closed-shops_Jonny Essex

Councils can sue developers for unpaid business rates

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As more Covid-hit High Street businesses shutter, the Supreme Court has ruled that local authorities can sue for unpaid business rates due on empty properties.

26th May 2021
Editor AccountingWEB
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Many landlords of commercial property are suffering because their tenants have left or gone into liquidation.

If the building is empty and unused no business rates are due for the first three months it is vacant, but most businesses must start to pay the business rates again after three months. An extension of this three month relief period can be claimed for certain types of building (industrial, listed, or very small rateable value), or where the owner is a charity or community amateur sports club.

There is also an exception to the requirement to pay business rates where the owner is a company in liquidation and doesn’t occupy the property, or the owner is a company in administration. However, these exceptions have been used within business rates avoidance schemes by certain property developers. They form special purpose vehicle (SPV) companies to hold the empty properties, and then put those SPVs into liquidation, avoiding the business rates.

The test case

The Supreme Court appeal centred on a test case involving two local authorities that claimed to have reasonable grounds for claiming unpaid business rates from the owners of various unoccupied commercial properties. 

The result of the Supreme Court’s ruling could have widespread implications for other local authorities looking to pursue claims, with empty shops now littered across the battered High Street. 

The two councils, Rossendale Borough Council and Wigan Council, are representative of 55 similar cases, where the value of the claims for unpaid business rates vary from a few thousand to millions of pounds. 

Rates avoidance scheme

Hurstwood Group and Property Alliance Group, the two companies at the centre of this case, granted a short lease of the unoccupied property to a special purpose vehicle (SPV). This rates avoidance scheme then becomes the ‘owner’ of the property for the purpose of the liability for business rates. But the SPV is put into members’ voluntary liquidation or is dissolved. This scheme artificially prolongs the existence of the SPV and therefore escapes liability. 

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Replies (5)

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Ivor Windybottom
By Ivor Windybottom
27th May 2021 09:09

While I don't like the planning as described, it is a symptom of the flawed business rates model.

If we want vibrant high streets the councils need to change. That won't happen, and we'll all pay in one way or another - extra residential council tax, abandoned high streets or loss of council services.

If only the councils could find a way to save money and so adopt an affordable rates model... maybe getting rid of the final salary pensions their staff enjoy?! Never gonna happen!

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By Justin Bryant
27th May 2021 11:07

It's a mystery to me why the Government doesn't simply implement retrospective legislation to block such loopholes, as it has done with abandon elsewhere when far less tax was at risk.

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By Paul Crowley
27th May 2021 15:19

It definitely was an avoidance scheme
Fair play to Supreme Court
Time as Justin says to legislate

It is a shame that avoidance schemes do not have to be registered

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By kestrepo
28th May 2021 13:35

Good news. Maybe this will finely incentivise building owners to do something with their properties rather than letting them languish in a state of disrepair.

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Replying to kestrepo:
Maytuna
By DJKL
02nd Jun 2021 13:50

Demolishing them used to be the route of choice, though Councils these days are also levying rates on bare land (albeit valuations tend to be lower if there are no structures)

Expect a fair bit more empty commercial property as more business entities start to fold once HMG support dries up.

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