Comment: Refreshing rate reform gives businesses a break

The Scottish Government's refresh of the business rates system is to be welcomed, says Alan Cook. Picture: contributed.
The Scottish Government's refresh of the business rates system is to be welcomed, says Alan Cook. Picture: contributed.
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As with most things in life, the proposed business rate reforms on which the Scottish Government is currently consulting will not please everyone, but the commercial property sector sees a number of positives.

The consultation paper sets out the Government’s proposed approach to various aspects of the Barclay review of Scottish business rates, which require primary legislation. These include a pilot scheme giving certain local authorities a new power to increase rates paid by out of town, or predominantly online, businesses and the removal of automatic charity rates relief for independent schools.

Finance secretary Derek Mackay said the measures set out in the consultation would “ensure we maintain a competitive advantage for Scottish ratepayers” and would strike the right balance between offering a competitive and sustainable taxation environment, while delivering sufficient resources to fund public services.

The Government is also seeking views on whether to include the new “business growth accelerator” scheme in primary legislation, or continue to renew this annually by way of secondary legislation. One of the central recommendations of Ken Barclay’s review, the business growth accelerator scheme exempts new Scottish commercial properties from business rates until one year after the property is occupied by its first tenant.

This concession responds to concerns from the commercial property industry that speculative developments were being hampered because developers were concerned that, if tenants were not secured quickly, they would be liable for paying rates on an empty building.

Another significant proposal is reducing the rates revaluation cycle on business premises to three-yearly. Non-domestic premises, including shops, offices, warehouses and factories have traditionally been revalued for rates purposes once every five years, based on rental values at a date two years before the date the revaluation takes effect. From 2022, as recommended by the Barclay review, the Scottish Government intends to increase revaluations to once every three years, based on rental values at a date one year before the revaluation takes effect.

Following the financial crisis, many business owners complained of an alarming disparity in rates they had to pay based on older property valuations compared to post-crash values. Shortening the revaluation timeline will provide a closer correlation between rates payable and current property values, and should avoid some of the nasty financial shocks which have emerged after less frequent revaluations took place.

From 2020, business rates relief will be restricted for listed buildings to a maximum of two years, as also recommended by the review, to “encourage bringing empty property back into economic use”. After two years, 90 per cent rates will be payable in line with other types of empty property, while listed buildings will at least not suffer the 10 per cent surcharge applied to other properties which have lain empty for longer than five years.

The Government’s Barclay review implementation advisory group recommended that property in the planning process be excluded from these changes. However, the Government has ruled out doing so.

It believes “this could have consequences if the planning system were abused with properties ‘parked’ in the system to avoid payment of local taxation”. Instead, local councils could be given discretion on whether to apply the changes in order to reflect local circumstances and the consultation is seeking views on this proposal.

We await to see what emerges from the consultation process and makes it on to the statute book, but on the whole the Scottish Government’s refresh of our business rates system is to be welcomed.

Alan Cook, partner and commercial property specialist at Pinsent Masons