Financial Scrutiny Unit Briefing Non-domestic Rates€¦ · Financial Scrutiny Unit Briefing Non-domestic Rates 17 June 2015 15/32 Anouk Berthier This briefing provides information

The Scottish Parliament and Scottish Parliament Information Centre logos.

Financial Scrutiny Unit Briefing

Non-domestic Rates 17 June 2015

15/32

Anouk Berthier

This briefing provides information on non-domestic rates and analyses the most recent data on revenues from these rates. It explains the collection and redistribution of non-domestic rates to local authorities as well as the current Business Rates Incentivisation Scheme and how it differs from the previous scheme. It also provides a list of all the non-domestic rates relief schemes available to new and existing businesses in Scotland.

2

CONTENTS

EXECUTIVE SUMMARY .............................................................................................................................................. 3

BACKGROUND............................................................................................................................................................ 4

THE RATEABLE VALUE OF NON-DOMESTIC PROPERTIES ................................................................................. 5

NON-DOMESTIC RATES AND IMPLICATIONS FOR LOCAL AUTHORITIES ......................................................... 7

POOLING AND REDISTRIBUTION OF NON-DOMESTIC RATES ........................................................................ 7 REVENUES FROM NON-DOMESTIC RATES ........................................................................................................ 8

BUSINESS RATES INCENTIVISATION SCHEME ..................................................................................................... 8

NON-DOMESTIC RATES RELIEF............................................................................................................................. 12

WHAT IS NON-DOMESTIC RATES RELIEF? ...................................................................................................... 12 SMALL BUSINESS BONUS SCHEME .................................................................................................................. 13 CHARITY RELIEF .................................................................................................................................................. 14 EMPTY PROPERTY RELIEF ................................................................................................................................. 14 DISABLED PERSONS RELIEF ............................................................................................................................. 15 RELIEF FOR RELIGIOUS PROPERTIES ............................................................................................................. 16 SPORTS CLUB RELIEF ........................................................................................................................................ 16 RURAL RATE RELIEF ........................................................................................................................................... 16 RENEWABLE ENERGY GENERATION RELIEF SCHEME.................................................................................. 16 ENTERPRISE AREA RELIEF ................................................................................................................................ 17 HARDSHIP RELIEF ............................................................................................................................................... 17

COMMUNITY EMPOWERMENT (SCOTLAND) BILL ............................................................................................... 17

NON-DOMESTIC PROPERTIES EXEMPT FROM RATES ...................................................................................... 17

ADDITIONAL INFORMATION ................................................................................................................................... 19

SOURCES .................................................................................................................................................................. 20

RELATED BRIEFINGS .............................................................................................................................................. 24

3

EXECUTIVE SUMMARY

Non-domestic rates, also known as business rates, are a property-based tax charged to businesses and the public and third sectors based on a property’s rateable value. The poundage rate for 2015-16 is 48p for properties with a rateable value of up to £35,000. The Large Business Supplement is 1.3p. The income from non-domestic rates is currently the single largest source of revenue under the control of the Scottish Government. Non-domestic rates generated £2.37bn in 2013-14. Provisional outturn for NDRI in 2014-15 is £2.66bn and estimated NDRI in 2015-16 is £2.84bn. Non-domestic rates will become the second largest source of revenue under the control of the Scottish Government after the introduction of the Scottish Rate of Income Tax in April 2016. The Business Rates Incentivisation Scheme aims to give local authorities an incentive to maximise their existing non-domestic rates income, to grow their tax base and also attract new economic growth. The original scheme was launched on 1 April 2012 and monetary targets were based on an estimate of what each local authority was expected to collect. This scheme was suspended and following a review the terms of a revised scheme were introduced in 2014 with targets from 2014-15 onwards. The targets are now based on 32 individual local rather than national targets and are linked only to the buoyancy element (i.e. the growth in the rateable value of non-domestic properties) of the estimated non-domestic rates income for any one year. Non-domestic rates relief is a series of relief schemes that are aimed at helping businesses by reducing their non-domestic rates bill. The total value of non-domestic rates relief was £590m in 2013-14, equal to almost a quarter of non-domestic rates income. Charities accounted for the single largest share of non-domestic rates relief in 2013-14, receiving close to 30% of the total. The Community Empowerment (Scotland) Bill introduces a new power to allow local authorities to create localised relief schemes. Stage 3 of the Bill is due to take place on 17 June 2015.

4

BACKGROUND

Non-domestic rates (NDR), also known as business rates, are a property-based tax charged to businesses and the public and third sectors based on a property’s rateable value. Properties used for both domestic and business use (for example a guest house, hotel or a business run from home) may be charged both council tax and NDR. There are three main bodies involved in the rating system: the Scottish Assessors, the Scottish Government and local authorities. The Scottish Assessors assess the rateable values of non-domestic properties. The Scottish Government sets the annual tax rate and sets out and funds the national framework for reliefs. Councils determine relief eligibility, issue NDR bills and collect payments. The revenue from NDR helps fund local services, including services to business. Non-domestic rates bills are calculated by the Council as a proportion of rateable value. This proportion is called the poundage, which is a pence in the pound tax rate, set annually by the Scottish Ministers, less any relief to which a ratepayer may be eligible. Business rates generally rise annually, subject to revaluations, usually in line with inflation (measured by the September Retail Price Index). In 2006-07, Scottish Ministers committed to the equalisation of the Scottish poundage rate with that of England, which was achieved in 2007-08. Moreover, the Scottish Government has committed to match the English poundage rate for the lifetime of the current Scottish Parliament (up to 2016) (Scottish Government 2012a). In 2013 the UK Government (2013) announced it would cap the annual increase of NDR at 2% in 2014-15 and this decision was followed by the Scottish Government (2013a). In 2014 the UK Government (2014) announced that it would again maintain the annual increase of NDR at 2% in 2015-16 and this decision was followed by the Scottish Government (2014a). Table 1 shows the poundage rate from 1999-2000 to 2015-16 in Scotland and England. Figure 1 shows the percentage change in the poundage rate from 2000-01 to 2015-16 in Scotland and England.

Table 1 Poundage rate, 1999-2000 to 2015-161

Year Scottish Poundage rate (p) English Poundage rate (p)

1999-2000 48.9 48.9

2000-01 45.8 41.6

2001-02 47 43

2002-03 47.8 43.7

2003-04 47.8 44.4

2004-05 48.8 45.6

2005-06 46.1 41.5

2006-07 44.9 42.6

2007-08 44.1 44.1

2008-09 45.8 45.8

2009-10 48.1 48.1

2010-11 40.7 40.7

2011-12 42.6 42.6

2012-13 45 45

2013-14 46.2 46.2

2014-15 47.1 47.1

2015-16 48 48

1 Note that the standard Scottish poundage rate is the equivalent of the small business poundage rate in England.

The Large Business poundage rate in Scotland is equivalent to the standard poundage rate in England.

5

Figure 1 Annual percentage change in poundage, 2000-01 to 2015-16, Scotland and England

-20%

-15%

-10%

-5%

0%

5%

10%

20

00-0

1

20

01-0

2

20

02-0

3

20

03-0

4

20

04-0

5

20

05-0

6

20

06-0

7

20

07-0

8

20

08-0

9

20

09-1

0

20

10-1

1

20

11-1

2

20

12-1

3

20

13-1

4

20

14-1

5

20

15-1

6

Scottish Poundage rate English Poundage rate

The sharps decreases in the poundage rates occur in revaluation years. Table 2 shows the poundage rate for different non-domestic properties in Scotland in 2014-15 and 2015-16.

Table 2 NDR Poundage 2014-15 and 2015-16

Rateable value Poundage 2014-15 Poundage 2015-16

Up to £35,000 47.1p 48p

Above £35,000 (Large Business Supplement) 47.1 + 1.1 = 48.2p 48 + 1.3 = 49.3p

£300,000 or above and which sell both alcohol and

tobacco (Public Health Supplement)

48.2 + 13 = 61.2p 49.3p

The Large Business Supplement (1.1p in 2014-15 and 1.3p in 2015-16) is levied on properties with a rateable value over £35,000. The Public Health Supplement (13p in 2014-15) for large retailers was chargeable in the financial years 2012-13 to 2014-15.2 It ended on 31 March 2015.

THE RATEABLE VALUE OF NON-DOMESTIC PROPERTIES

The rateable values of non-domestic properties are determined by the Scottish Assessors who work independently of both the Scottish Government and local authorities. All non-domestic properties, unless specifically exempted, are listed in the publicly accessible Valuation Rolls with their corresponding rateable value. At regular intervals there is a statutory revaluation process whereby the Scottish Assessors revise the rateable value of all non-domestic properties based on rental evidence. A property’s rateable value is broadly equivalent to a year’s fair market rent at the Tone Date, which has been set two years prior to revaluation.

Following a revaluation new values generally remain unchanged until the next revaluation unless properties are altered or other changes take place. New properties are added to the Valuation Roll as they become occupied and entries for demolished buildings are deleted. The latest revaluation came into effect on 1 April 2010 and the next revaluation has been postponed

2 Further details are available at Non-Domestic Rates (Levying) (Scotland) (No. 2) Regulations 2012.

6

to 1 April 20173 based on values fixed at 1 April 2015 (Scottish Government 2012a). Thereafter valuations are currently scheduled to take place every five years.

New owners, tenants or occupiers may appeal the valuation of a non-domestic property within six months of acquiring an interest in the property or within six months of the valuation (or revaluation) date. 99% of the appeals following the 2010 revaluation had been resolved (Scottish Government 2015a). Appeals may also be lodged at any time on the grounds of error or if there is considered to have been a material change of circumstances. Table 3 shows the total rateable value of all non-domestic properties in Scotland from 2010-11 to 2013-14. The 24.8% increase in 2010-11 is due to the revaluation that took effect on 1 April 2010.

Table 3 Total rateable value of non-domestic properties, cash and real terms (2013-14 prices), 2010-11 to

2013-14

2010-11 2011-12 2012-13 2013-14

Rateable value, £m (cash)

6,612 6,678 6,718 6,716

Annual % change 24.8% 1.0% 0.6% 0.0%

Rateable value, £m (real)

6,979 6,924 6,855 6,716

Annual % change 21.4% -0.8% -1.0% -2.0%

Source: Source: Scottish Government 2013f, 2015b

As at 1 April 2014 the rateable value of all non-domestic properties was £6,681m (Scottish Government 2015b). Figure 2 shows non-domestic properties by classification as a percentage of all non-domestic properties and as a percentage of total rateable value as at 1 April 2014. Shops make up the greatest percentage of non-domestic properties accounting for 24% of all non-domestic properties, followed by industrial subjects and offices.

Figure 2 Classification of non-domestic properties, 2014

0%

5%

10%

15%

20%

25%

30%

% of properties % of Rateable Value

Source: Scottish Government 2015b

3 The Valuation (Postponement of Revaluation) (Scotland) Order 2013 postponed the date of the 2015 revaluation

to 2017.

7

NON-DOMESTIC RATES AND IMPLICATIONS FOR LOCAL AUTHORITIES

The administration of NDR and relief schemes is a matter for local authorities. Non-domestic rates income (NDRI) is currently the single largest source of revenue under the control of the Scottish Government. It generated £2.66bn in 2014-15 and is expected to generate £2.84bn in 2015-16 (Scottish Government 2015f). Following the devolution of the Scottish rate of income tax in April 2016, NDRI will become the second largest source of revenue under the Scottish Government. Revenues attributed to SRIT are expected to generate £4.53bn in 2015-16 (OBR 2015).

POOLING AND REDISTRIBUTION OF NON-DOMESTIC RATES

Each local authority collects its NDR from businesses in its area and pays a contribution to the Scottish Government.4 This contribution is based on each local authority’s estimated NDRI for that financial year. Local authorities are required to recalculate their contribution after the year ends and as a result may have to make further payments to the Scottish Government if their NDRI was greater than forecast, or may be reimbursed by the Scottish Government for any overpaid contribution. Each year the Scottish Government redistributes to local authorities all the NDR paid to it as shown in Figure 3. This is known as the Distributable Amount (DA) and is set by the Scottish Government before the start of each financial year. It is based on a forecast of NDRI and prior year adjustments, and is therefore not guaranteed to match the total contributions to the pool for that year. Any difference between forecasts and actual rates collected is redistributed in subsequent years.5

Figure 3 Distribution of NDR

Up to and including 2010-11, NDRI was redistributed to local authorities on the basis of population. From 1 April 2011 onwards NDRI has been redistributed to local authorities in proportion to each local authority’s prior-year mid-year NDRI return (net of any prior year adjustments) (Scottish Government 2013b). For 2011-12 the basis of redistribution was 2010-11 mid-year returns; for 2012-13 to 2014-15 the basis was 2011-12 returns, and for 2015-16 the basis was 2013-14 mid-year returns (Scottish Government 2010, 2011b, 2013a 2015d). The Scottish Government guarantees the combined General Revenue Grant (GRG) plus the distributable NDRI figures in any given year.

4 In order to avoid unnecessary cash flows between the Scottish Government and local authorities, only net

payments are made, reflecting the net balance of sums due to be paid by them to authorities and of sums due from

authorities to them (Scottish Government 2013b). 5 If there is a surplus, it is carried forward to be redistributed in the next year. If there is a deficit, it is carried

forward by crediting that year’s account and debiting the next year’s account (Scottish Government 2013b).

8

Local authorities may seek to reduce their estimated NDRI in-year to prevent them from suffering a shortfall of income in that year and creating a cash flow problem. In this case the Scottish Government may provide additional GRG in-year rather than the local authority having to wait until the following financial year to be compensated. The trigger for such a request has to be a “significant event” defined as a deviation of 3% or more from the total estimated NDRI for that year (Scottish Government 2014a).

REVENUES FROM NON-DOMESTIC RATES

Table 4 shows NDRI for 2010-11 to 2013-14.

Table 4 NDRI, cash and real terms (2013-14 prices) 2010-11 to 2013-14

2010-11 2011-12 2012-13 2013-14

NDRI, £m (cash) 2,138 2,251 2,347 2,367

Annual % change 6.4% 5.3% 4.3% 0.9%

NDRI, £m (real) 2,257 2,334 2,395 2,367

Annual % change 3.5% 3.4% 2.6% -1.2%

Source: Scottish Government 2013f, 2015b

Table 5 shows provisional (in the draft budget columns) and actual NDRI (in the budget column) for 2014-15 and 2015-16. Provisional NDRI for 2014-15 was £2,688m but actual distributable NDRI for 2014-15 was slightly lower at £2,649.5m.

Table 5 Draft budget 2015-16 provisional and actual NDRI

2014-15 Draft

Budget

2014-15

Budget

2015-16 Draft

Budget6

NDRI (£m) 2,688 2,649.5 2,799.5

Source: Scottish Government 2014c

Provisional NDRI outturn for 2014-15 is now £2,660.9m (Scottish Government 2015f). In the Draft Budget 2015-16 the distributable NDR for 2015-16 was valued at £2,799.5m (Scottish Government 2014c). As at March 2015 the revised distributable NDRI for 2015-16 was £2,788.5m (Scottish Government 2015c). The £11m reduction follows the reduction in the estimated distributable NDRI resulting from the cap in the NDR poundage for 2015-16 (Scottish Government 2015c). As at May 2015 estimated NDRI for 2015-16 was £2,841.6m (Scottish Government 2015f).

BUSINESS RATES INCENTIVISATION SCHEME

On 1 April 2012 the original Business Rates Incentivisation Scheme (BRIS) was introduced to give local authorities an incentive to maximise their existing NDRI, to grow their tax base and also attract new economic growth. It was target-based: each local authority that exceeded its individual local target retained 50% of any additional NDRI and the Scottish Government retained the other 50%. Those local authorities that did not reach their target continued to be compensated by the Scottish Government up to the level of their distributable NDR through increased GRG.

The first targets set out in 2012-13 (Scottish Government 2011a) were based on an estimate of what each local authority was expected to collect. The Scottish Government proposed that the 2012-13 targets should be revised, under the “significant event” clause following receipt of the

6 This figure uses the latest forecast of net income from NDR in 2015-16 and also draws on council estimates of the

amounts they will contribute to the Pool from NDR in 2014-15.

9

2012-13 mid-year returns as they identified a considerable increase in income caused by the delay in settling appeal cases that year (Scottish Government 2013c). COSLA took the decision not to review the 2012-13 targets until the 2012-13 audited returns became available (Scottish Government 2013d). In 2014 COSLA failed to agree on revised 2012-13 targets, but the Scottish Government agreed that it should allow those local authorities that had exceeded the Scottish Government’s revised targets for that year only, around £9m in total, to retain these sums. This retention was achieved by individual local authorities taking away an amount equivalent to the sum due from their contribution to the NDR pool for 2014-15.

Table 6 shows the BRIS targets for 2012-13 (set in 2012), revised BRIS targets, NDRI collected and retention sums for 2012-13.

Table 6 BRIS targets, NDRI and retention sums for 2012-13, £m

Local authority Targets Proposed

Targets7

NDRI8 Retained

Aberdeen City 163.960 175.464 170.220 -

Aberdeenshire 70.319 75.252 75.630 0.189

Angus 23.920 25.598 25.264 -

Argyll & Bute 26.985 28.878 27.419 -

Clackmannanshire 10.815 11.574 14.038 1.232

Dumfries & Galloway 39.980 42.785 42.203 -

Dundee City 61.957 66.303 59.634 -

East Ayrshire 26.780 28.658 28.644 -

East Dunbartonshire 21.210 22.698 22.561 -

East Lothian 20.724 22.178 23.267 0.544

East Renfrewshire 12.033 12.877 13.224 0.173

Edinburgh, City of 303.866 325.185 319.909 -

Eilean Siar 6.011 6.432 6.547 0.057

Falkirk 63.696 68.165 65.786 -

Fife 141.583 151.517 156.484 2.484

Glasgow City 313.233 335.209 316.100 -

Highland 98.267 105.162 107.753 1.296

Inverclyde 18.341 19.627 19.140 -

Midlothian 23.725 25.390 26.121 0.366

Moray 27.309 29.225 31.760 1.267

North Ayrshire 32.564 34.849 36.571 0.861

North Lanarkshire 99.452 106.430 93.763 -

Orkney 8.050 8.615 8.189 -

Perth & Kinross 46.703 49.979 50.276 0.148

Renfrewshire 87.265 93.387 87.133 -

Scottish Borders 25.067 26.826 27.596 0.385

Shetland 14.957 16.007 15.790 -

South Ayrshire 36.057 38.587 37.588 -

South Lanarkshire 247.526 264.892 253.711 -

Stirling 37.900 40.559 38.960 -

West Dunbartonshire 68.222 73.009 70.056 -

West Lothian 73.523 78.681 75.581 -

Scotland 2,252.000 2,410.000 2,346.915 9.002

Source: Column 1: Scottish Government 2012b, Column 3: personal correspondence with Scottish Government,

Column 4: Scottish Government 2014d

7 These targets were not published as COSLA did not agree to them and have been provided by the Scottish

Government (Scottish Government 2015e). 8 Audited returns - figures provided by Scottish Government (Scottish Government 2015e).

10

The original BRIS was suspended and following a review the terms of a revised scheme (Scottish Government 2014a) were agreed and introduced from 2014-15. The revised BRIS is more focused on growth of the local tax base within the local authority’s control and not adversely influenced by factors outwith its ability to influence.

The targets are now based on 32 individual local rather than national targets and are linked only to the buoyancy element of the total estimated NDRI for any one year, that is to say the growth in the underlying tax base (i.e. total rateable value). The new targets are set on a baseline which includes the national buoyancy assumption that the Scottish Government factors into the distributable NDR. The Scottish Government (2014a) notes:

“Given the local [BRIS] targets will be based on buoyancy alone, it should be noted that the existing calculation of the Distributable Non-Domestic Rate estimates includes a Scottish Government assumption about the level of buoyancy at a national level. There are no plans to change the basis of this calculation and so an increase in an individual local authority’s local buoyancy rate will need to be over and above the already built in estimate. i.e. the target will be set on a baseline which will include a share of the national buoyancy assumption.”

As the purpose of the BRIS is to grow the business tax base and increase NDRI, any increase in the buoyancy must be matched by a corresponding increase in NDRI for local authorities to be able to retain rates. This is because some properties are entered on the valuation roll but do not pay rates as they benefit from a relief or exemption. Where a local authority demonstrates an increase in total rateable value without any evidence of a corresponding increase in NDR collected this will not trigger rates retention under the revised BRIS.

Local targets are calculated using historical average growth figures at an individual local authority level. These figures exclude the rateable value of statutory undertakings (utilities). Targets will be issued as part of each Spending Review for each of the years of that Spending Review with the first year being final and the subsequent years being provisional subject to final confirmation. The final annual targets will be published in the Local Government Finance Circular in late November/early December as part of the annual local government finance settlement consultation process and agreed through discussion between individual local authorities, through COSLA, with the Scottish Government.

The Scottish Government retains the risk that individually or collectively local authorities fail to achieve the overall estimate of income to be collected. Each local authority that exceeds its individual local buoyancy calculated target will retain a 50% share of the additional rates income generated (where there is a corresponding increase in rateable value), and the Scottish Government will retain the other 50% excess. Those local authorities that do not reach their target will continue to be compensated by the Scottish Government up to the level of their agreed published distributable amount of NDRI for the year in question through increased GRG. Individual local targets are to be rebased following each NDR revaluation cycle.

Table 7 shows the BRIS target for each local authority in 2014-15 and provisional targets for 2015-16. For example in 2014-15 the BRIS buoyancy target for Aberdeen City is 1.6%. This figure includes Aberdeen City’s share of buoyancy at the national level plus an additional component. If the total rateable value of non-domestic properties in Aberdeen City increases by 1.6% or more and provided the increase in the tax base is matched by a corresponding increase in NDRI, Aberdeen City will be able to retain 50% of any additional revenues.

11

Table 7 Local buoyancy targets, 2014-15 and provisional 2015-16

2014-15 Provisional 2015-16

Aberdeen City 1.6% 1.2%

Aberdeenshire 2.0% 1.7%

Angus 1.6% 1.2%

Argyll & Bute 1.7% 1.3%

Clackmannanshire 1.5% 1.1%

Dumfries & Galloway 1.4% 1.0%

Dundee City 1.4% 1.1%

East Ayrshire 1.6% 1.3%

East Dunbartonshire 1.7% 1.3%

East Lothian 1.7% 1.4%

East Renfrewshire 1.5% 1.2%

Edinburgh, City of 1.5% 1.1%

Eilean Siar 1.9% 1.6%

Falkirk 1.5% 1.2%

Fife 1.7% 1.3%

Glasgow City 1.5% 1.1%

Highland 1.6% 1.3%

Inverclyde 1.6% 1.3%

Midlothian 1.7% 1.4%

Moray 2.0% 1.6%

North Ayrshire 1.7% 1.3%

North Lanarkshire 1.6% 1.2%

Orkney Islands 1.8% 1.4%

Perth & Kinross 1.6% 1.3%

Renfrewshire 1.3% 1.0%

Scottish Borders 1.7% 1.3%

Shetland Islands 1.6% 1.3%

South Ayrshire 1.4% 1.1%

South Lanarkshire 1.8% 1.5%

Stirling 1.5% 1.1%

West Dunbartonshire 1.5% 1.2%

West Lothian 1.7% 1.4%

Source: Scottish Government 2014a

12

NON-DOMESTIC RATES RELIEF

WHAT IS NON-DOMESTIC RATES RELIEF?

The Scottish Government maintains a series of relief schemes that are aimed at helping businesses by reducing their NDR bill. Businesses must apply to the Council for rates relief. Certain reliefs are mandatory; others have an element which is at the discretion of the Council in which case the costs are met 75% by Scottish Government and 25% by the Local Authority. Under certain conditions, local authorities can grant reliefs of up to a 100% as long as these comply with State aid rules. State aid rules allow for the granting of public sector assistance of up to €200,000 (approximately £147,000) over a rolling 3 year period (the de minimis limit for State aid). Table 8 shows the estimated total value of NDR relief from 2010-11 to 2013-14.

Table 8 NDR relief, cash and real terms (2013-14 prices), 2010-11 to 2013-14

2010-11 2011-12 2012-13 2013-14

NDR relief, £

thousands (cash)

501,013

541,635

588,018

589,574

Annual % change 7.7% 8.1% 8.6% 0.3%

NDR relief, £

thousands (real) 528,802 561,623 600,037 589,574

Annual % change 4.8% 6.2% 6.8% -1.7%

Source: Scottish Government 2013f, 2015b

Figure 4 shows the annual change in NDRI, rateable value and NDR relief from 2010-11 to 2013-14. NDR relief increased by more in percentage terms than NDRI from 2010-11 to 2012-13.

Figure 4 Annual percentage change in NDRI and amount of NDR relief (cash terms), 2010-11 to 2013-14

6.4%

5.3%

4.3%

0.9%

7.7%8.1%

8.6%

0.3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

20

10-1

1

20

11-1

2

20

12-1

3

20

13-1

4

NDRI Relief

Table 9 shows the amount of NDR relief as a percentage of NDRI from 2010-11 to 2013-14.

13

Table 9 Amount of NDR relief as a percentage of NDRI, 2010-11 to 2013-14

2010-11 2011-12 2012-13 2013-14

NDR relief/NDRI 23.4% 24.1% 25.1% 24.9%

Table 10 shows NDR relief by relief type for 2013-14.9 In 2013-14 charities received the largest share of total NDR relief.

Table 10 Amount of NDR relief by relief type, 2013-14

Type of Relief Amount (£ thousand) Percentage (%)

Charities 173,623 29.45

Small Business Bonus Scheme 161,002 27.31

Unoccupied/partly unoccupied Property 146,496 24.85

Disabled persons relief 58,299 9.89

Religious Properties 25,205 4.28

Sports Clubs 12,911 2.19

Renewable Energy Relief Scheme 7,333 1.24

Rural Rate Relief 4,323 0.73

Fresh Start 189 0.03

New Start 130 0.02

Other 63 0.01

Total 589,574 100

Source: Scottish Government 2015b

SMALL BUSINESS BONUS SCHEME

Under the Small Business Bonus Scheme (SBBS), a general scaled reduction is available for NDR on certain non-domestic properties with an individual rateable value of £18,000 or less, or a cumulative value of £35,000 or less, provided that the non-domestic properties are not used for payday lending.10 The £35,000 threshold was increased in 2014-15 from £25,000. Businesses have to apply for the SBBS but generally do not need to reapply annually as long as their circumstances stay the same, subject to the local authority’s policy.

The reductions available under the SBBS for 2015-16 are shown in Table 11.

Table 11 Relief for non-domestic properties with a rateable value of £18,000 or less, 2015-1611

Rateable value (RV) Relief

£10,000 or less 100%

£10,001 - £12,000 50%

£12,001 - £18,000 25%

£18,001 - £35,000 25% on each individual property with a

rateable value of £18,000 or less

In 2013 the Scottish Government committed to continuing the SBBS for the lifetime of the current parliament (up to 2016) and considering which relief thresholds could be established on a longer term basis ahead of the 2017 revaluation.

Figure 5 shows the classification of non-domestic properties in each local authority by rateable value.

9 Final audited relief expenditure for 2013-14.

10 Payday lending refers to the process of lending, the making of, or advertising the availability of, loan agreements

in relation to which the credit provided is to be repaid or substantially repaid over a period that does not exceed 12

months and being loan agreements with an annual percentage rate of interest equal to or exceeding 10%. 11

Further details are available at Non-Domestic Rates (Levying) (Scotland) Regulations 2014 and the Non-

Domestic Rates (Levying) (Scotland) Regulations 2015

14

Figure 5 Classification of non-domestic properties by rateable value (%) as at 1 April 2014

0%10%20%30%40%50%60%70%80%90%

100%

Ab

erd

ee

n C

ity

Ab

erd

ee

nsh

ire

An

gu

s

Arg

yll

& B

ute

Cla

ckm

ann

ansh

ire

Du

mfr

ies &

Ga

llow

ay

Du

nde

e C

ity

Ea

st

Ayrs

hire

Ea

st

Du

nb

art

on

sh

ire

Ea

st

Lo

thia

n

East R

en

frew

shire

Ed

inb

urg

h, C

ity o

f

Eile

an

Sia

r

Fa

lkir

k

Fife

Gla

sg

ow

City

Hig

hla

nd

Inve

rcly

de

Mid

loth

ian

Mo

ray

No

rth

Ayrs

hire

No

rth

La

nark

sh

ire

Ork

ne

y I

sla

nd

s

Pe

rth

& K

inro

ss

Re

nfr

ew

sh

ire

Sco

ttis

h B

ord

ers

Sh

etla

nd

Isla

nds

So

uth

Ayrs

hire

So

uth

La

nark

sh

ire

Stirl

ing

We

st

Du

nba

rto

nsh

ire

We

st

Lo

thia

n

Up to £18,000 £18,001 to £35,000 Above £35,000

Source: Scottish Government 2015b

In 2013-14 SBBS relief amounted to an estimated £161m (Scottish Government 2015b) and was the second largest relief accounting for 27.3% of total NDR relief.

CHARITY RELIEF

If the property occupied by a registered charity - listed on the register maintained by the Office of the Scottish Charity Regulator (OSCR) - is used "wholly or mainly for charitable purposes," the ratepayer may be entitled to 80% mandatory rate relief. It is up to each local authority to determine whether a property is being used "wholly or mainly for charitable purposes". Local authorities also have discretionary power to top this relief up to 100%.

Discretionary relief is also available to other not-for-profit organisations that do not receive funding to assist with rate costs. Local authorities have discretionary powers to grant up to 100% rate relief. The conditions to qualify are broadly:

The property must be used by one or more organisations which are not-for-profit, and whose objects are charitable or otherwise philanthropic or religious or concerned with education, social welfare, science, literature or the fine arts

The premises are wholly or mainly used for the purpose of recreation, and all or part of the premises are occupied for the purposes of a not-for-profit organisation

Relief for charities amounted to £173.6m in 2013-14. This was the single largest NDR relief, equal to 29.4% of total NDR relief (Scottish Government 2015b).

EMPTY PROPERTY RELIEF

The Local Government Finance (Unoccupied Properties etc.) (Scotland) Act 2012 gives Scottish Ministers the power to alter by regulations the level of Empty Property Relief. The Non-Domestic Rating (Unoccupied Property) (Scotland) Amendment Regulations 2013 provides relief for non-domestic properties that have been unoccupied for a continuous period of more than three months. If non-domestic properties are occupied for less than six weeks during that time, they are still treated as unoccupied during that period. Empty property relief grants 100%

15

mandatory rate relief to properties which are empty for the first three months and 10% discount thereafter (compared to 50% prior to 1 April 2013). In other words the ratepayer of an unoccupied non-domestic property is required to pay 90% of NDR which would have been payable if the property were occupied. The following non-domestic properties are exempt from NDR even after the first three months of vacancy:

Industrial subjects

Listed buildings

Properties with a rateable value of less than £1,700

Properties where a person entitled to possession is a trustee under a trust deed or sequestration, an executor of a deceased person’s estate or a liquidator

Properties owned by a company being wound up

Where the owner is prohibited by law from occupying or allowing occupation

Where the unoccupied part of the property is vacant by reason of action being taken on behalf of the crown or any public authority with a view to acquisition or prohibiting occupation

In addition, if part of the property is not being used and is completely unoccupied for a short time, the local authority may consider giving relief and reduce the payment on that part of the property that is clearly unoccupied and beyond use for a short period of time.

As of 1 April 2013, two new reliefs apply. The Fresh Start Relief Scheme provides a 50% relief for 12 months if:

The property started being occupied on or after 1 April 2014 and had been unoccupied for at least 12 months previously

The property has a rateable value under £65,000

The last use of the property was as a shop, office, restaurant, pub or hotel

Where there was no previous use, the property’s current use is as a shop, office, restaurant, pub or hotel

The New Start Relief Scheme provides relief for new build properties that are first entered in the valuation roll in the financial years 2013-14 to 2015-16. If unoccupied, such properties may be eligible for 100% relief for up to 15 months (in addition to the three months under the empty property relief) in total during the years 2013-14 to 2017-18. A further application for 100% relief can be made in those years if the property is occupied for a period but becomes unoccupied.

In 2013 the Scottish Government committed to undertake a review of the change to empty property relief in 2015 (Scottish Government 2013e).

Empty Property Relief is the third largest NDR relief in 2013-14 accounting for 24.8% of the total value of reliefs.

DISABLED PERSONS RELIEF

Up to 100% rate relief is available to organisations where nursing care12 is provided within the terms of the Rating (Disabled Persons) Act 1978 if 50% or more of the premises are used exclusively for one of the following:

Residential accommodation for the care or aftercare of those suffering from illness

Training or activities for people suffering/who have suffered illness or are disabled

12

This does not include medical, surgical or dental treatment i.e. hospitals and clinics are excluded.

16

Welfare Services or workshops for disabled persons in terms of Section 15 of the Disabled Persons (Employment) Act 1944 or Section 3 (1) of the Disabled Persons (Employment) Act 1958

Disabled persons relief amounted to £58.3m in 2013-14 (Scottish Government 2015b).

RELIEF FOR RELIGIOUS PROPERTIES 100% relief is available to properties used as places of worship. Religious properties relief in 2013-14 amounted to £25.2m (Scottish Government 2015b).

SPORTS CLUB RELIEF A community amateur sports club (CASC) registered with HM Revenue and Customs may be entitled to 80% mandatory rate relief. The council also has discretionary powers to top this relief up to 100%. Sports Club relief in 2013-14 amounted to £12.9m (Scottish Government 2015b).

RURAL RATE RELIEF Certain non-domestic properties in designated rural settlements with a population below 3,000 are entitled to a mandatory 50% NDR relief which can be topped up to 100% at the discretion of the local authority. These non-domestic properties are:

A small food shop, general store or post office with a rateable value below £8,500

A small hotel, public house of petrol filling station with a rateable value of up to £12,750 The local authority may at its discretion provide relief for businesses providing a benefit to the community with a rateable value of up to £17,000. Rural rate relief amounted to £4.3m in 2013-14 (Scottish Government 2015b).

RENEWABLE ENERGY GENERATION RELIEF SCHEME

A targeted relief of up to 100% is available for businesses who own, lease or are otherwise entitled to occupy one of more business properties solely for the generation of renewable heat and/or power from the following source: biomass, biofuels, fuel cells, photovoltaics, waters (including waves and tides, but excluding production from the pumped storage of water), wind, solar power and/or geothermal. This relief is applied before any other calculation of relief. Table 12 provides the rate reductions under this scheme.

Table 12 Renewable Energy Relief thresholds, 2015-16

Rateable value Relief

Up to £145,000 100%

£145,001 - £430,000 50%

£430,001 - £860,000 25%

£860,001 - £4,000,000 10%

Above £4,000,000 2.5%

The Renewable Energy Relief Scheme amounted to £7.3m in 2013-14 (Scottish Government 2015b).

17

ENTERPRISE AREA RELIEF

The Non-Domestic Rates (Enterprise Areas) (Scotland) Regulations 2012 provides for the Enterprise Area Relief which is available for 5 years starting on 1 April 2012 for non-domestic properties in enterprise area sites and which are occupied for the purpose of carrying out certain activities. The property must be a new entry in the valuation roll after 1 April 2012 or an existing property that has been unoccupied for a continuous period of three months before the person seeking relief took occupation (the property must be in receipt of Empty Property Relief for a prior three-month period). The reduction awarded can be up to 100% until March 2017. Table 13 shows the different reliefs available under this scheme.

Table 13 Enterprise Area Relief thresholds, 2015-16

Rateable value Relief

Up to £120,000 100%

£120,001 - £240,000 50%

£240,001 - £480,000 25%

£480,001 - £1,200,000 10%

£1,200,001 - £2,400,000 5%

Above £2,400,000 2.5%

HARDSHIP RELIEF

Ratepayers suffering hardship and who cannot pay their NDR bill may receive up to 100% discretionary rate relief from the Local authority.13

COMMUNITY EMPOWERMENT (SCOTLAND) BILL

Part 8 of the Community Empowerment (Scotland) Bill (Scottish Parliament 2014) introduces a new power to allow local authorities to create localised relief schemes to any type of ratepayer or for any reason, as they see fit. Any reliefs will need to be fully funded by that authority. Local authorities will have no power to increase rates locally for business or levy a new supplement.

Further information is available in SPICe Briefing Community Empowerment (Scotland) Bill (Campbell et al. 2014) and SPICe Briefing Community Empowerment (Scotland) Bill – Parliamentary consideration prior to Stage 3 (Campbell & Reid 2015). Stage 3 of the Bill is due to take place on 17 June 2015.

NON-DOMESTIC PROPERTIES EXEMPT FROM RATES

Some types of property are entirely exempt from entry in the Valuation Roll and are thus not liable to pay non-domestic rates, or are entered on the Roll but are then exempted from rates. These include:

Agricultural lands and buildings

Shootings, deer forests, fishings and fish counters14 – referred to as “sporting rates” (Scottish Government 2014f)

Public parks

Roads

Sites of Automatic Telling Machines in rural settlements

13

See LocalGovernment (Scotland) Act 1966 and LocalGovernment etc. (Scotland) Act 1994 s. 156. 14

See Local Government etc. (Scotland) Act 1994 s. 151.

18

Sewers

Offshore oil and gas pipelines

Diplomatic missions

Offshore renewables

Lighthouses

Overseas armed forces in the UK The Report of the Land Reform Review Group (Scottish Government 2014e) published in May 2014 considered that there was no clear public interest case in maintaining the current universal NDR exemption of agriculture, forestry and other land based businesses. The Group recommended that the Scottish Government should review this historic exemption. In October 2014 the Scottish Government (2014g) published The Wild Fisheries Review which recommended that a standard levy rate should apply to all wild fisheries in Scotland and be set at a level approximately equivalent to that which might be expected if such fisheries were required to pay NDR. In December 2014 the Scottish Government (2014f) published a Consultation on the Future of Land Reform in Scotland which proposed that a Land Reform Bill include provisions to end the NDR exemptions for shootings and deer forests. The Land Reform (Scotland) Bill is expected to be introduced in the Scottish Parliament before the end of June 2015. Further information is available in SPICe Briefing 15/28 Land Reform in Scotland (Reid 2015). Other properties may be exempt from valuation under statute and Assessors determine whether or not a property is exempt from valuation. In addition, properties are charged NDR instead of Council Tax in the following circumstances:

The property is available to let for more than 140 days a year (regardless of how many days it is in fact rented)

The property is a guest house or a bed-and-breakfast operation for more than six people at any one time

People working from home may be charged NDR on the part of the property used for work (and charged Council Tax on the rest of the property)

19

ADDITIONAL INFORMATION

More information on non-domestic rates can be found on the Business Scotland website and the Scottish Government webstie: http://www.business.scotland.gov.uk/topic/business-rates http://www.business.scotland.gov.uk/topic/business-rates Local Government contact contact information is available at: http://www.gov.scot/Topics/Government/local-government/17999/contactdetails The Scottish Assessors Association website is available at: http://www.saa.gov.uk/ In addition, information on the financial assistance available to businesses in Scotland can be found in SPICe Briefing A guide to Government financial assistance for businesses (Nicol 2013).

20

SOURCES

Campbell A. et al. (2014) Community Empowerment (Scotland) Bill SPICe Briefing 14/58, Available at - http://www.scottish.parliament.uk/ResearchBriefingsAndFactsheets/S4/SB_14-58_.pdf [Accessed 04 June 2015]

Campbell A. & Reid A. (2015) Community Empowerment (Scotland) Bill – Parliamentary consideration prior to Stage 3 SPICe Briefing 15/18, Available at - http://www.scottish.parliament.uk/ResearchBriefingsAndFactsheets/S4/SB_15-18_Community_Empowerment_Bill_-_Stage_3.pdf [Accessed 04 June 2015]

Nicol S. (2013) A guide to Government financial assistance for businesses SPICe Briefing 13/66, Available at - http://www.scottish.parliament.uk/ResearchBriefingsAndFactsheets/S4/SB_13-66.pdf [Accessed 04 June 2015]

Office for Budget Responsibility (2015) Economic and fiscal outlook Devolved taxes forecast, Available at - http://cdn.budgetresponsibility.independent.gov.uk/Devolved-taxes-forecast_180315.pdf [Accessed 16 June 2015]

Reid A. (2015) Land Reform in Scotland SPICe Briefing 15/28, Available at - http://www.scottish.parliament.uk/ResearchBriefingsAndFactsheets/S4/SB_15-28_Land_Reform_in_Scotland.pdf [Accessed 04 June 2015]

Scottish Government (2010) Local Government Finance Circular No. 14/2010, Local Government Finance Settlement 2011-12, Available at - http://www.gov.scot/Resource/Doc/1070/0109280.pdf [Accessed 04 June 2015]

Scottish Government (2011a) Local Government Finance Circular No. 12/2011, Local Government Finance Settlement 2011-15 (Revised Tables) and Business Rates Incentivisation Scheme (BRIS) - Provisional 2012-13, Available at - http://www.scotland.gov.uk/Resource/Doc/1070/0124668.pdf [Accessed 14 May 2015]

Scottish Government (2011b) Local Government Finance Circular No. 11/2011, Local Government

Finance Settlement 2012-15, and changes in 2011-12, Available at - http://www.gov.scot/Resource/Doc/1070/0123866.pdf [Accessed 04 June 2015]

Scottish Government (2012a) Supporting Business – Promoting Growth, Available at - http://www.gov.scot/Resource/0040/00409068.pdf [Accessed 11 May 2015]

Scottish Government (2012b) Local Government Finance Circular No. 3/2012, Local Government Finance (Scotland) Amendment Order 2012 -Settlement for 2012-12 and Business Rates Incentivisation Scheme (BRIS) - 2012-13 Targets. Available at - http://www.gov.scot/Resource/0038/00389812.pdf [Accessed 15 May 2015]

Scottish Government (2013a) Finance Circular No. 6/2013. Local Government Finance Settlement 2014-15 and changes in 2013-14, Available at - http://www.scotland.gov.uk/Topics/Government/local-government/17999/11203/LGFCircular2013 [Accessed 11 May 2015]

Scottish Government (2013b) Scottish Government Local Government Portfolio: Non-domestic Rating Account 2012-13, Available at - http://www.gov.scot/Resource/0046/00465039.pdf [Accessed 26 May 2015]

Scottish Government (2013c) Local Government Finance Circular No. 1/2013. Local Government Finance (Scotland) Order 2013 - Settlement 2013-14 and changes in 2012-13,

21

Available at - http://www.scotland.gov.uk/Resource/0041/00414122.pdf [Accessed 14 May 2015]

Scottish Government (2013d) Question S4W-17988: Willie Rennie, Mid Scotland and Fife, Scottish Liberal Democrats, Date Lodged: 29/10/2013, Answered by John Swinney (05/11/2013) , Available at - http://www.scottish.parliament.uk/parliamentarybusiness/28877.aspx?SearchType=Advance&ReferenceNumbers=S4W-17988&ResultsPerPage=10 [Accessed 14 May 2015]

Scottish Government (2013e) Supporting Business, Promoting Growth – Scottish Government response, Available at - http://www.scotland.gov.uk/Resource/0043/00433245.pdf [Accessed 11 May 2015]

Scottish Government (2013f) Scottish Local Government Financial Statistics 2011-12, Available at - http://www.gov.scot/Publications/2013/02/4659/0 [Accessed 04 June 2015]

Scottish Government (2014a) Local Government Finance Circular No. 9/2014, 2015-16 Local Government Finance Settlement and changes to 2014-15, Available at - http://www.gov.scot/Resource/0046/00469158.docx [Accessed 11 May 2015]

Scottish Government (2014b) Non-Domestic Rates Relief Statistics for Small Businesses in Scotland 2014, Statistics Publication Notice Economy (Local Government Finance), Available at - http://www.gov.scot/Resource/0046/00462118.doc [Accessed 04 June 2015]

Scottish Government (2014c) Scottish Budget: Draft Budget 2015-16, Available at - http://www.gov.scot/Publications/2014/10/2706/downloads#res462240 [Accessed 11 May 2015]

Scottish Government (2014d) Local Government Finance Circular No.6/2014, Local Government Finance (Scotland) - Settlement 2015-16 (1), Available at - http://www.gov.scot/Resource/0045/00455984.docx [Accessed 14 May 2015]

Scottish Government (2014e) The Land of Scotland and the Common Good, Report of the Land Reform Review Group, Available at - http://www.gov.scot/Resource/0045/00451597.pdf [Accessed 04 June 2015]

Scottish Government (2014f) A Consultation on the Future of Land Reform in Scotland, Available at - https://consult.scotland.gov.uk/land-reform-and-tenancy-unit/land-reform-scotland/supporting_documents/00464887.pdf [Accessed 04 June 2015]

Scottish Government (2014g) Report of the Wild Fisheries Review Panel, Available at - http://www.gov.scot/Resource/0046/00460195.pdf [Accessed 04 June 2015]

Scottish Government (2014h) Scottish Local Government Financial Statistics 2012-13, Available at - http://www.gov.scot/Resource/0044/00444846.pdf [Accessed 04 June 2015]

Scottish Government (2015a) Non-domestic Rates Revaluation Appeals 2014-15 Q4, Available at http://www.gov.scot/Topics/Statistics/Browse/Local-Government-Finance/NDR-Rates-Relief/Appeals2014-15Q4 [Accessed 29 may 2015]

Scottish Government (2015b) Scottish Local Government Financial Statistics 2013-14, Available at - http://www.gov.scot/Resource/0047/00475290.xls [Accessed 11 May 2015]

Scottish Government (2015c) Local Government Finance (Scotland) Amendment Order 2015, Available at - http://www.gov.scot/Resource/0047/00472956.doc [Accessed 11 may 2015]

22

Scottish Government (2015d) Local Government Finance (Scotland) Order 2015 - Settlement 2015-16 and changes in 2014-15 (Version 2), Available at - http://www.gov.scot/Topics/Government/local-government/17999/11203/localgovernment11203 [Accessed 02 June 2015]

Scottish Government (2015e), Personal correspondence with Scottish Government on 1 June 2015

Scottish Government (2015f) Provisional Outturn 2014-15 and Budget Estimates 2015-16, http://www.gov.scot/Resource/0047/00477389.pdf [Accessed 16 June 2015]

Scottish Parliament (2014) Community Empowerment (Scotland) Bill (as introduced), Available at - http://www.scottish.parliament.uk/S4_Bills/Community%20Empowerment%20(Scotland)%20Bill/b52s4-introd.pdf [Accessed 04 June 2015]

UK Government (2013) Autumn Statement 2013, Available at - https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263942/35062_Autumn_Statement_2013.pdf [Accessed 11 May 2015]

UK Government (2014) Autumn Statement 2014, Available at - https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/382327/44695_Accessible.pdf [Accessed 14 May 2015]

23

THIS PAGE IS INTENTIONALLY BLANK

24

RELATED BRIEFINGS

SB 12-31 The Local Government Finance (Unoccupied Properties Etc.) (Scotland) Bill (3 May 2012)

SB 13-84 Non-domestic Rates (17 December 2013)

SB 13-66 A guide to Government financial assistance for businesses (21 October 2013)

SB 14-58 Community Empowerment (Scotland) Bill (22 September 2014)

SB 15-18 Community Empowerment (Scotland) Bill – Parliamentary consideration prior to Stage 3 (1 April 2015)

SB 15-28 Land Reform in Scotland (3 June 2015)

Scottish Parliament Information Centre (SPICe) Briefings are compiled for the benefit of the Members of the Parliament and their personal staff. Authors are available to discuss the contents of these papers with MSPs and their staff who should contact Anouk Berthier on extension 85370 or email [email protected]. Members of the public or external organisations may comment on this briefing by emailing us at [email protected]. However, researchers are unable to enter into personal discussion in relation to SPICe Briefing Papers. If you have any general questions about the work of the Parliament you can email the Parliament’s Public Information Service at [email protected].

Every effort is made to ensure that the information contained in SPICe briefings is correct at the time of publication. Readers should be aware however that briefings are not necessarily updated or otherwise amended to reflect subsequent changes.

www.scottish.parliament.uk