"Despite the new changes in legislation, box shifting remains rife. Ethical rates mitigation options, such as claiming charitable rates relief, are now more cost-effective than box shifting, yet still less favoured by property managers who encourage clients to utilise box shifting schemes"
- Shaylesh Patel - Ban Box Shifting
On 1 April 2024, the previous Government amended England’s empty property relief (EPR) laws to tackle business rates avoidance and evasion, following a consultation in late 2023. The extension of the EPR period from six weeks to thirteen aims to stamp out unethical rate avoidance practices, namely the ‘box shifting’ scam, where landlords ‘occupy’ empty buildings with boxes for the EPR period. At the end of the period, landlords can claim business rates relief and repeat the cycle.
Such practices come at the detriment of our local communities. High streets are left vacant by scores of empty stores, while struggling councils lose out on crucial business rates income, totalling £250m annually. Indeed, one in five English councils are at severe risk of bankruptcy this year, with Birmingham City Council attributing its bankruptcy last year to a ‘dramatic reduction in business rates income’, implying ongoing tax evasion or underreporting.
The new EPR legislations bring England closer in line with Scotland and Wales, where the EPR period is six months, yet still more needs to be done to discourage business rates avoidance from continuing. There is no doubt that the new Government will want to take a harder stance on this with its plans for business rates reforms. What once was an accidental loophole has now caught the attention of policymakers - and something needs to change.
A persisting loophole
Despite the new changes in legislation, box shifting remains rife. Ethical rates mitigation options, such as claiming charitable rates relief, are now more cost-effective than box shifting, yet still less favoured by property managers who encourage clients to utilise box shifting schemes.
Charitable rates relief, granted to genuine charities occupying space, qualifies them for 80% off business rates. This means that landlords do not have to wait a quarter of a year to save even £1, while contributing to local communities, with the charities they rent to providing support for vulnerable residents.
For the sake of landlords and their tenants, why not look at genuine tax breaks, and operate in a more ESG-friendly way, when it comes at no monetary cost?
The change to EPR means that charitable rates relief is now a more ethical and cost-effective option, over the short and long term. With both the previous and the new Government acknowledging the concerns over EPR abuse, and taxpayers beginning to become aware of such scams as box shifting becomes more visible, this is a watershed moment for landlords and multi-chain operators to look at decision-making differently.
Why does this matter to the commercial property sector?
On a macro level, it’s not just one property owner’s reputation that is at stake, but the sector’s as a whole. The commercial property sector plays an important role in the UK’s ecosystem, contributing over £100bn to the economy each year, around 7% of the total, and employing more than 1.2m people.
To avoid having such a vital industry fall foul of the taxman, property managers must stop playing the loophole game, and remove the growing target on their back. Otherwise, legitimate complaints from the sector will be discarded by authorities and lawmakers.
The property sector is now at a crossroads. Agency fees, backhanded deals, and vague information shared with clients on options regarding tax savings highlight a dark side to the industry. Those involved in under-the-table connections and payments should be motivated to clean up their act - once the taxman begins asking questions of property agents, and clients begin testifying, many business rates advisers may find themselves on the wrong side of HMRC. The Post Office scandal is just one insight into the future where commercial property might head.
Certain property advisers only want a payout
Property advisers against the changes in EPR legislation, in supposed defence of the finances of retailers, are not truly concerned with the ramifications continued box-shifting practices will have on the sector. These organisations benefit from payouts when bringing other options/sectors into disrepute - such as the charity sector! - with no regard for the impact they have on local businesses across England.
The Covid-19 pandemic cost governments across the world huge sums of money, leaving governments with two choices: cutting spending or increasing taxes. Tax avoidance has historically been severely frowned upon, especially if done by the wealthy. Right or wrong, landlords fall into the perceived “wealthy” category - to defend taking advantage of loopholes to the detriment of the nation is becoming inexcusable.
What we want to do is work together to improve the sector’s reputation. While certain property advisers may be strong advocates of box shifting, people within such big organisations will hold different views - and some will be keen to find an ethical solution that suits landlords, councils, and communities.
A readjustment of the business rates multiplier, fairer business rates, or legislation that encourages re-letting empty spaces are just some of the answers that have been thrown around. For now, charitable rates mitigation is one solution that benefits the landlord as well as charities, who report that finding space is the second biggest issue the sector faces today.
Is there a possibility advisers take advantage of this by recommending landlords sign leases in the name of a charity, without the charity ever occupying the space?
Potentially. But the culprits will be the same as those who survived on box shifting - and will be unwelcome both in the charity sector and in the eyes of the taxman, especially now that increasing levels of anti-avoidance power are being granted to the rates-collecting local authorities.
The amendment to England’s EPR laws is a step towards encouraging ethical forms of rates mitigation, but more needs to be done to tackle the persistence of box shifting. To ensure the property sector remains a reputable industry, it is collaboration between property advisers, landlords, lawmakers, and local governments that can find a solution that benefits all, contributes positively to England’s local communities and supports the economic health of councils across England.
