"Some landlords continue to find creative and persistent ways to approach tax avoidance, most notably ‘snail shams’, where snail farms are housed in properties to be classified as for ‘agricultural use’, thereby allowing landlords to avoid paying business rates"
- Shaylesh Patel - Ban Box Shifting
Effective from 1 April 2024, the Government has made a long-awaited change in legislation to England’s Empty Property Relief (EPR) reset period for commercial properties, from six to thirteen weeks, following its Business Rates Avoidance and Evasion consultation in late 2023.
The extension of the EPR reset period aims to help stamp out unethical business rates avoidance practices, such as ‘box shifting’, which involves ‘occupying’ buildings with boxes, a single small Bluetooth device, or low-value furniture, to regularly repeat the EPR reset period and make landlords eligible to claim business rates relief time and time again.
Indeed, business rates avoidance practices are a factor in the recent council bankruptcies and swathes of empty high street stores: Birmingham City Council cited ‘dramatic reductions in business rates income’ as one of the top three causes of its bankruptcy.
According to the Local Government Association, box shifting alone costs councils £250m annually, incentivising landlords and multi-chain operators to keep commercial properties unoccupied.
The Ban Box Shifting campaign was founded in late 2022 to bring broader awareness to business rates avoidance, and to ensure that charities and public services are not neglected as a result of empty shops, mass closures of chains, and dwindling council funding.
From our campaigning to replicate the actions of the devolved Scottish and Welsh governments, we were able to collect more than a hundred signatures from MPs and councillors who backed our cause, saw a motion passed by the London Assembly to ban box shifting, and have now influenced legislation change around business rates avoidance with the Government making direct reference to box shifting.
The misleading sales tactics of agents pushing intermittent occupation have had a hugely negative impact on political sentiment towards the property industry, which might consider itself as fortunate that the loophole quashing was not as severe as in Wales and Scotland.
But since further changes don’t need changes to primary legislation and more general anti-avoidance measures in the pipeline, the industry should brace itself or navigate its way to safer shores.
The more ethical options have become ever more competitive since 1 April 2024, and have passed the test of political and public sentiment, now being more established amongst landlords, developers and tenants burdened with unused commercial space.
Our goal is to further encourage ethical rates mitigation through charitable rates relief, which, being cheaper than box shifting and delivering greater savings earlier, benefits landlords, charities, and most importantly, local communities.
More to do to root out box shifting to avoid further loophole-quashing
The amendment to extend the EPR reset period from six to thirteen weeks will reduce council losses from rates avoidance. For retail and office spaces, where landlords can claim three months of EPR following thirteen weeks of occupation, councils miss out on 50% of their empty rates revenue, rather than 68% before.
For industrial spaces, this number is significantly higher - landlords can claim six months of EPR after the thirteen-week reset period, meaning councils are still losing out on a staggering two-thirds of empty rates revenue, down from 81%.
While box shifting is no longer the most effective way for landlords and multi-chain operators to spend less on business rates, exploitation will continue to be rife. In Wales and Scotland, the EPR reset period is a whole six months for six months of EPR, while for industrial spaces in England, there remains an unequal thirteen weeks of occupation for six months of EPR.
If the exploitation continues, it may be that England lawmakers decide to take a step further towards this stance to fully quash the unpopular practice and therefore avoid further council bankruptcies, with core funding further squeezed in the current cost of living crisis.
Unless the sector moves away from box shifting (intermittent occupation) of its own volition, business rates avoidance will be stamped out by lawmakers because dissatisfaction will grow among taxpayers across the country.
To draw a parallel, there is no love lost for faceless corporates (akin to a Starbucks registered in a tax haven) earning profit from local areas and not paying its fair taxes.
Similarly, as Birmingham and other council tax-paying residents become aware of box shifting and other forms of business rates avoidance, public sentiment will continue to turn. The sooner this unethical practice is stopped, the quicker local government will be able to work towards improving services for everyone’s mutual benefit.
Encouraging ethical rates mitigation
What we can look at are forms of ethical rates mitigation schemes that are beneficial for all parties. Charitable rates relief, where landlords and multi-chain operators can work with genuine charities to occupy empty commercial premises and qualify for an 80% saving, without having to wait a quarter of a year to save even one pound.
This costs landlords less than box shifting, involves less red tape, and through charities, can provide key support for vulnerable residents.
Space is the second biggest problem charities report facing, behind funding, and it makes sense for landlords to give these empty, dilapidated high street spaces to charities, saving money for both parties while improving local community services. During a cost of living crisis, the value brought by charities for communities is immense.
When retailers have more than twelve months to go on a lease or licence when they close a branch, or a freehold remains inactive for more than six months, we believe that changes in legislation should be made to ensure forms of ethical rates mitigation are made available - for example, a requirement to make the space available for charities to make use of the space. For retailers, this can subsidise the requirement to ensure the asset is used by reducing their business rates burden.
However, it is important to remember that no sector is exempt from exploitation, and legislation should be amended with that in mind. For example, EPR for charities with empty spaces should be restricted to no more than, say, four weeks, at the start of a tenancy. This will avoid charities taking leases from landlords while staying shut for long periods of time, thereby not delivering value to communities that a genuine charity space would.
Tackling business rates avoidance in all forms
Box shifting aside, other forms of unethical rates avoidance practices will continue to prevail. Some landlords continue to find creative and persistent ways to approach tax avoidance, most notably ‘snail shams’, where snail farms are housed in properties to be classified as for ‘agricultural use’, thereby allowing landlords to avoid paying business rates.
As such, the Ban Box Shifting campaign calls for the ban of agricultural use of buildings unless they have such planning status, as well as a one-year time limit on avoidance for properties left in insolvency ‘limbo’, to ensure spaces are quickly re-activated and councils can receive rates revenue. The protracted pre-pack administration process of The Body Shop alone is likely to deprive councils of over £2m in business rates, according to research from ASTOP.
Other actions we believe the Government can take to ensure councils are not deprived of empty rates income include; putting an upper limit on the listed buildings exemption from empty rates to ensure that these historic sites do not fall into disrepair; introducing clearer and faster guidelines and time limits on refurbishments (which can easily become drawn out and delivery slow to avoid being put back on the ‘incurring empty rates’ list); and maximising the time limit on new builds on the ground floors of blocks of new flats from being off the ‘incurring empty rates’ list, making them promptly available to rent and ensure they contribute to councils’ business rates income pots.
Ultimately, landlords and retailers who are genuinely committed to ESG and CSR will automatically follow their gut, and therefore bypass the tax avoidance dance between the taxman, property owners, and their advisers. The more we can do to encourage ethical rates mitigation, the better - to the benefit of landlords, charities, and communities.
The Government’s acknowledgement of box shifting as an issue is the first step to stamping out business rates avoidance. Together, we can work to ensure that councils on the brink of bankruptcy receive a vital stream of income to prevent further service cuts for vulnerable residents and fill up empty high street shops with charities that can provide communities with real value.
