Scottish government consults on business rates reform

The paper sets out the government's proposed approach to the various aspects of the Barclay review of Scottish business rates which require primary legislation. These include the move to three-yearly revaluations, which will be based on the property's rateable value one year before the revaluation takes effect; 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.

The government is also seeking views on whether to include the new 'business growth accelerator' scheme in primary legislation, or whether to continue to renew this annually by way of secondary legislation. 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. The scheme was one of the central recommendations of Ken Barclay's review, and was enacted by the Scottish government on 1 April 2018.

Finance secretary Derek Mackay said that the measures set out in the consultation would "ensure we maintain a competitive advantage for Scottish ratepayers".

"The recommendations of Barclay, alongside others in the Budget, strike the right balance between offering a competitive and sustainable taxation environment while delivering sufficient resources to fund the public services on which we all rely," he said.

"In April, I introduced a number of measures to underpin that competitive advantage. The growth accelerator and 100% relief for new build properties until first occupied will support speculative development and encourage improvements to our building stock, while our new targeted nursery relief will support a sector that is vital to ensuring an inclusive workforce. These measures are unique in the UK and apply equally to the public, private and third sectors. I am confident that these measures will not only attract new investment into Scotland, but also incentivise new developments and support employment," he said.

Business rates are charged on most non-domestic premises including shops, offices, warehouses and factories. Properties 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.

The Scottish government has committed to introducing a pilot scheme under which no more than three local councils would be permitted to apply "modest" rates supplements on out of town ratepayers and predominantly online ratepayers from 2020, in certain circumstances. The consultation seeks views on certain safeguards which would be applicable to these pilots, including a legislative cap on the supplement and a requirement for ministerial or parliamentary approval for each scheme. Councils could also be required to consult local ratepayers on their proposals.

Other measures on which the Scottish government is seeking feedback are replacing the existing, rarely-used criminal penalty for non-provision of information with a new civil penalty; bringing local authority debt recovery powers into line with those for council tax; and reforms to the appeals system.

The Scottish government intends to restrict business rates relief for listed buildings to a maximum of two years from 2020, as recommended by the Barclay review, "to encourage bringing empty property back into economic use". After two years, relief will be cut to 10% in line with other types of empty property. Property empty for longer than five years, with the exception of listed property, would pay a 10% surcharge.

The government's Barclay Review implementation advisory group recommended that property in the planning process be excluded from these changes. The government has ruled out doing so, however, as "this could have consequences if the planning system were abused with properties 'parked' in the system to avoid payment of local taxation". Instead, it has proposed giving local councils discretion on whether to apply the changes in order to reflect local circumstances. It is seeking views on whether to do so as part of the consultation.

Once the consultation is complete, the Scottish government intends to legislate for the changes during the current parliamentary session.