Since the Court of Appeal ruled that box shifting without any real purpose is unlawful, councils have grown more willing to challenge business rates avoidance. In principle, that is welcome. Councils across England lose over £300 million a year to avoidance, with London councils losing £75 million alone, and abusive schemes must be dealt with firmly.
But a crackdown only works if it is aimed at the right target, and nowhere are the stakes higher than in London. The capital has the highest business rates bills in the country. ASTOP is seeing councils across England reject legitimate arrangements alongside the abusive ones, and London boroughs, under real financial pressure, will be tempted to follow.
Consider what this means for anyone who owns empty offices, shops or other commercial space in the capital. Box shifting is gone, and rightly so. But if councils also close the door on legitimate, ethical rates mitigation, where a charity or community group uses the space, owners are left with one option: pay full rates on empty buildings.
In London, where rateable values are higher than anywhere else in the country, those bills are very large. They also arrive when the economy is weak and many businesses are already stretched. Money spent on rates for an unused unit cannot be spent on refurbishing space for new tenants, investing in the building, or hiring. For smaller landlords, a run of void bills can threaten survival, and for the businesses that rent from them, the costs tend to pass down the chain.
There is a case in Leicester where a church has occupied a commercial unit for two years. It holds its services there, and every Sunday service is streamed and recorded online, leaving a clear and continuing record of what happens in the building. Yet the council maintains that the church is not in occupation and is moving to put the rates bill back on the landlord, a small, local business.
Without a fight, that landlord may see little point in keeping the church in the unit. If the bill lands on them, the sensible commercial decision may be to ask the congregation to leave. A community that has built its life around that space could lose its home, and a property that is currently in use may go back to sitting empty.
The landlord here is a family business with no legal department and no portfolio across which to spread the cost. London’s owners face bills many times larger, so they will be even less willing to take the risk. If a council can refuse to recognise two years of recorded worship, any London borough could do the same to any arrangement, and the owner would be left with the bill.
“Places of worship” have undoubtedly been abused. Some owners have briefly designated empty premises as religious venues purely to access relief, with no congregation and no sustained activity, and those arrangements deserve to be challenged. However, real occupation looks very different. An organisation delivering services over a sustained period, with people who depend on the space, and evidence that is often easy to find, from regular activities and records of use, to, in Leicester’s case, two years of livestreamed worship. The difficulty is that councils lack the powers and clear guidance to draw this line properly, so officers are left with limited tools, and the safest response is often to refuse anything proof presented.
ASTOP is an ethical property management company, and the organisation behind the End Rates Avoidance campaign. It places charities and community groups in empty commercial buildings, so that landlords gain an occupier, charities gain space, and councils are spared the fake-occupier schemes draining their budgets. Everyone benefits except those who would otherwise exploit the system.
However, even councils that have worked constructively with ethical providers are now stepping back due to the recent crackdown. A key South West of England council, and ASTOP client, who wishes to remain anonymous, has said that following the ruling it needs to review its rates mitigation, which may mean it can no longer work with ethical firms, despite the fact that ASTOP does not engage in box shifting or any other form of avoidance. If an ethical provider can be caught in the net, so can any landlord.
If landlords, including councils, abandon this model wholesale, the people who lose out will be the organisations that depend on subsidised space. These organisations already receive 80% mandatory rates relief, a relief the government created precisely so that charities can provide services to their communities. Taking away their premises because of other people’s abuse would undermine the very purpose of that relief. The landlord loses too; the occupier who was keeping the unit in use and the bill under control walks away, and the owner is left with an empty building and a full rates liability.
The Court of Appeal’s ruling was the right outcome. Box shifting for no real purpose is avoidance, and it should be treated as such. But a legitimate route for empty-property rates mitigation still exists, and it should be protected.
With the Budget due in early November, there is a real opportunity to shape what comes next, and landlords, property owners, business groups and charities should not wait. Writing to their MP, their borough council and their London Assembly Member now, explaining how ethical occupation works and why it matters, can help ensure that decision-makers understand what is at stake before reforms are finalised.
As the government looks to legislate, it needs to get four things right:
- Define legitimate occupation clearly. Landlords need to see where the line is before they commit. A workable test that separates real, sustained use from token gestures lets councils act confidently against abuse, and lets owners who host charities in good faith avoid being left with bills for arrangements that serve their communities.
- Give councils the powers and guidance they need. Officers should not have to choose between rejecting everything and approving everything. They need the tools to tell real use from token use.
- Protect ethical arrangements explicitly. Legislation should be drafted so that a crackdown on avoidance does not remove charities’ access to space, or the landlords who make that space available.
- Give owners early certainty. A written council decision on an arrangement before liability arises would let landlords plan, invest and hire with confidence, rather than discovering a rates bill after the fact.
Tackling business rates avoidance is about fairness, and fairness has to cut both ways. London’s boroughs are right to be more assertive, but assertiveness has to be accurate. If it is not, the capital’s landlords will pay the price, and so will the businesses, charities and communities that depend on them.
Feature image by Pexels
