Tax Day/NHS charitable relief claim
The Treasury published its “Tax policies and consultations report (Spring 2021)” on 23 March 2021
“Tax day” combines an overview of the Government’s taxation policy with an update on the 30 tax-related consultations that are underway.
No major policy developments have been announced.
There are announcements that do affect local government but the major policy choices on local taxation will not be announced until the Autumn – at the earliest.
An interim report on the fundamental business rates review has been published.
It summarises the responses from the recent consultation but does not provide any indication of the decisions the Treasury will ultimately make about business rates.
The final report on the fundamental review of business rates will be published in the Autumn.
At that point, we should find out whether the Treasury is minded to replace or reform business rates, or offset the amount paid by businesses through the introduction of an Online Sales Tax.
- There is “consensus” that business rates has “distinct strengths”: “efficiency of collection”, “high level of revenue raised” and “relative difficulty of evasion”.
- Our reading of the report is that the Treasury is more inclined towards reform rather than replacement of business rates: “an essential source of funding for local services”, “putting the tax on a more sustainable footing for the future”.
- There are some very significant criticisms of the tax, both from businesses and from local authorities. From businesses, there are naturally complaints about the “burden of the tax”, as well as the “targeting and effectiveness of reliefs”. For local authorities, the “administrative burdens” of the scheme.
- A major overhaul of the number, scale and targeting of reliefs is very likely, and strongly supported. The scale of current reliefs narrows the taxbase, placing a greater burden on other businesses. Conversely, the number and scale of reliefs is made necessary by the high levels of rates.
- The main argument against significantly reducing business rates is that it would lead to an increase in rents (“capitalisation”). Views were mixed about the extent and pace at which this would take place.
- Most - but not all – businesses expressed “a strong preference” for less local discretion over reliefs (“complexity”, inconsistent application). Most – but not all – local authorities supported greater local discretion. More local discretion would make it “easier to work with local businesses” and “to address fiscal pressures at the local level”.
- There was support from many businesses for a fixed multiplier (i.e. not indexed every year, and not reset at revaluations), and even a cut in the multiplier. Revaluations would be more frequent (3-yearly, or even annually).
- There was very little support for replacing business rates with a Capital Values Tax. The change would be “highly disruptive for firms” and there is no “comprehensive register of freehold property ownership”.
- Responses to the introduction of an Online Sales Tax (OST) were more positive. OST is not going to replace business rates but could be used to reduce them. OST might also “level the playing field” but it is questionable whether it would “rejuvenate the high street”. A delivery tax might prove to be a better option (simpler; addresses changes in economic activity and externalities, e.g. pollution).
One specific change to business rates was announced: there will be tougher criteria for the owners of second homes paying business rates rather than council tax.
New criteria will “account for actual days the property was rented” (currently, properties have to be available for commercial letting for at least 140 days per year).
In the near future, MHCLG will respond to its consultation on the treatment of self-catering accommodation (November 2018) and will propose new legislation to change the criteria.
This change will force some second-home owners to re-classify their properties as domestic and liable for council tax rather than business rates.
There was no mention of council tax in any of the documents.
In the most significant tax announcement, NHS trusts are reported to have withdrawn their claim for charitable relief.
This removes a major financial risk for many authorities and it is a chance to release provisions for those authorities who had provided for the potential refund.