The Senedd have passed the Local Government Finance (Wales) Bill introducing a number of new measures in Wales relating to both business rates and council tax.
We wanted to take a look at the upcoming changes to business rates and what they mean for ratepayers.
The Welsh Government have stated the Bill, as it relates to business rates, will:
increase how often the values of all non-domestic properties in Wales are updated, to once every three years;
provide more flexibility to make changes to reliefs and exemptions;
enable changes to the calculation of payments for different categories of ratepayers;
close known tax avoidance arrangements and increase the ability to tackle future avoidance in a more responsive way;
enable improvements to the information provided by ratepayers.
Going through point by point:
Three year revaluations
The move to three year revaluation cycles mirrors the recent move in England brought in via the Non-Domestic Rating Act 2023. This means the next revaluation will take place in April 2026 rather than April 2028.
Theoretically, more frequent revaluations means more accurate rateable values as the financial data behind them will be up to date. However, the 2023 revaluation, which used 2021 financial factors (a historically down market due to lockdown and moves to working from home), still saw rateable values increase by 1.3% in Wales and 7.3% in England. In all likelihood, more frequent revaluations means more frequent increases to liabilities.
Greater flexibility to make changes to reliefs and exemptions
The Welsh Government have removed the need for primary legislation when removing or creating reliefs or exemptions.
The Covid-19 pandemic highlighted how the business rates system can be used to provide financial support for troubled businesses. By streamlining the process, Welsh Ministers should have additional flexibility and be able to respond quicker to any future concerns they feel can be addressed by the business rates system.
It doesn't appear there are current plans to create or remove any reliefs or exemptions at present (only to alter some - more on this later) but the Welsh Government has stated they are "committed to undertaking a review of all non-domestic rates reliefs schemes to ensure they are fit-for purpose and delivering support in the most effective way."
Changes to the calculation of payments for different categories of ratepayers
The Welsh Government have created mechanism to allow for different multipliers based on the rateable value, location or description of the property.
Multipliers determine how much business rates you pay; the multiplier multiplied by the rateable value being the annual charge before any reliefs. The current multiplier in Wales is 0.562. So, if you have a rateable value of 10,000 your annual charge would be £5,620 before reliefs.
In Wales there is a blanket multiplier for all hereditaments; however in England and Scotland, the multiplier used is determined by the rateable value. Meaning businesses with small properties pay a smaller percentage of their rateable value than businesses with larger properties.
Further, in England there are location specific supplements to the multiplier. For example, in Greater London there is 0.02 supplement for all properties with rateable values over 75,000 to fund the Crossrail project.
The Welsh Government have stated they aren't proposing any changes to multipliers at this stage, however, a move to create a small business multiplier seems logical and they have expressed interest in exploring a lower multiplier for environmentally friendly businesses.
Close known tax avoidance arrangements
There are two methods to achieving this headline result expressed within the Bill; strengthening the requirements for charitable rate relief on empty properties and clamping down on artificial avoidance.
Charitable rate relief on empty properties
The Welsh Government believe the current nature of this relief is liable to misuse and have moved to toughen up the requirements for the relief to be applied.
Previously in Wales, an empty property is exempt from rates if the billing authority are satisfied that when next in use it will be wholly or mainly used for charitable purposes.
The Bill adds specific evidential requirements for this relief; the charity's most recent accounts must be provided as well as the charity's most recent report (if required by the Charities Act 2011). Further, the billing authority must be satisfied that the property is empty for a reason related to the charitable purposes of the charity.
Artificial avoidance
In a similar vein to the move to create greater agility with the creation or removal of reliefs or exemptions, the Welsh Government have provided themselves with more fluidity in addressing what they may determine to be artificial avoidance.
They have stopped short of defining any present actions as artificial avoidance, however, they have defined artificial avoidance as arrangements creating an advantage that would not be a reasonable course of action. The Welsh Government may share the English Government's seeming distaste for methods of empty rates avoidance via cycles of temporary occupation and vacancy and this could be a reference to such schemes.
It has been made clear that any regulations that look to combat avoidance will be subject to consultation, allowing stakeholders to comment and have foresight as to what the government deems avoidance and adjust accordingly.
Greater disclosure from ratepayers
The move to require greater disclosure from ratepayers again mirrors recent policy changes in England introduced by the Non-Domestic Rating Act 2023.
Described as a necessity to allow for more frequent valuations, there will be a duty for ratepayers to provide contact details, how they use the property, any lease/licence information and physical changes made to the property.
Disclosure will be required annually and also when certain physical changes have been made. It has been stated that the duty will only come into place once it is clear that ratepayers can reasonably be expected to comply with it; this is estimated as being near the start of the next rating list (2026).
There will be penalties when a person makes a false statement with punishments extending to imprisonment for up to three months and/or a financial penalty.
A large part of selling the duty to notify in England was the promise of further transparency from the Valuation Office Agency, notably, no such promise is detailed within this Bill.
The imposition of the duty to notify has been widely criticised in England for creating an additional administrative burden to ratepayers. This move will come as somewhat of a blow to stakeholders hoping the new regime would reverse the duty in England as legislators appear to be doubling down on the policy.
Further changes
There are a few further changes not mentioned in the above headline bullet points.
Changes have been made to the scope of the completion notice procedure to close a gap that existed for buildings temporarily removed from a rating list due to refurbishment.
Restrictions on the awarding of discretionary reliefs have also been lifted. Historically, discretionary relief could only be applied within six months of the ending of the relevant financial year. For example, a discretionary relief for the financial year 2023/24 would need to be applied by 30th September 2024 (six months after the end of 2023/24). This restriction has now been removed for this current financial year and moving forward- but not historically; that is to say discretionary reliefs can be applied back to 1st April 2023 moving forward but cannot be applied earlier than that date.
Summary
If you'd like to read the Explanatory Notes or the Bill in full you can find it here:
If you have any questions about any of the new measures and how they could affect you, please get in touch with us 0208 0950 990 or info@hollowaybond.co.uk.
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