Amendments to business rate treatment of self-catering accommodation in England

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On 14 January 2022 Department for Levelling Up, Housing & Communities announced plans to close a, “loophole” in business rate classification of self-catering properties in England (and in doings so, bring England more in line with changes already made in Wales).  Implementation begins from this April and will apply to rates and charges from the start of the 2023- 24 tax year.

In essence, rather than merely having to have had the intent to make a property available for commercial, short lets for 140 day per year or more, and let for at least 70 of those days, as the current regulation stipulates, owners will now have to demonstrate that they have actually met those criteria in the previous year (in the first instance during 2022-23) and that they intend to meet them in the following year, in order to retain, or in the case of a new business, obtain their business rates listing and, by default, be eligible for any business rate related benefits. 

These benefits are currently up to 100% business rate relief, dependent upon their property’s rateable value (below £12k, 100% discount tapering to 0% between £12k and £15k). Business rated residential properties pay no Council tax and have latterly benefited from three or more automatic covid-19 related business interruption payments. This has allowed some owners to contribute little or nothing to tourism, pay little or nothing towards local services and by default pocket recent payments intended to compensate legitimate businesses. The departmental announcement is at:

https://www.gov.uk/government/news/gove-closes-tax-loophole-on-second-homes

The Valuation Office Agency (part of HMRC) will be responsible for determining whether a property should now be assessed for council tax or business rates under this new system.  In addition, billing authorities (local authorities) also have a statutory duty to inform the relevant valuation officer if they become aware of any information suggesting that a listing requires alteration, and can do this using a billing authority report.

Many of the more obvious questions about the rules and their application arising from the announcement are answered in part or in full in the Government’s response to the November 2018 – January 2019 consultation, published alongside last week’s announcement of 14 January 2022. The intention to take the actions announced last week were briefly previewed (1 paragraph) in Treasury announcements on the modernisation of taxation made in March 2021. 

The full consultation response is at: https://www.gov.uk/government/consultations/business-rates-treatment-of-self-catering-accommodation/outcome/business-rates-treatment-of-self-catering-accommodation-summary-of-consultation-responses-and-government-response

The intended means of gathering the necessary evidences, if it is sought by the valuation offices, appears to by means of form VO 6048 which asks a range of detailed questions on the nature of the property, its usage and associated financial detail.  In its current format the VO 6048 doesn’t appear to seek any of the evidence, detailed elsewhere, that demonstrates that the property was made available to let for at least 140 days, I.E., actively promoted.  Whether the form will be amended to collect that detail before it is used in 2022/23, or whether evidence of the availability/promotion will be routinely gathered by other means, or gathered only as part of an investigation into suspected breaches, isn’t yet clear from the information currently available. The form can be viewed at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/975490/VO6048_-_Self_Catering_Holiday_Homes.pdf

The changes being made are intended only to stop those who don’t meet the 70/140-day criteria being listed for business rates and falsely benefiting from current business rate relief.  Those who do meet the criteria but choose to remain listed for Council tax, as some self-catering and B&B businesses currently do, will continue to be able to do so.  There is and will be no compulsion to register for business rates even if the residential property exceeds the minimum criteria by some considerable margin. 

The nature and scale of any penalties for those who knowingly breach the new or amended application of the rules are a little unclear.  The brief documents referenced above mention only: the removal from the business rate list, the potential for a liability for backdated Council tax payments and a fairly standard reference on the VO 6048 to the potential for prosecution if a false statement to HMRC is made. The first two “penalties” merely place you in the position you would have been had you had not chosen to avoided Council tax payments in the first instance and are therefore arguably of only of very limited deterrence.  Much clearer understanding of the penalties available and/or arguably greater levels of deterrence may be required?

During the consultation Government in England rejected calls from some in the industry to align the number of days let and available to let in self-catering properties with those for furnished holiday lettings.  The minimum requirement for the latter being 105 days let and available for 210 days, or a full third longer.  Furnished holiday lettings are deemed to be a professional business using assets primarily purchased for business purposes, consequently attracting different tax and capital gains treatments, whereas self-catering operations are seen as semi-professional business use of personal assets (my interpretation).  In reality 70 days let (90 in London) and 140 days available are relatively short periods, particularly when the industry as a whole are striving to professionalise the accommodation sector and, critically, tackle the ingrained issues of seasonality and a traditionally short, sharp main season. 

The argument for a 105/210 days has been lost, for the time being at least, but it does beg the question, should British Destinations and others seek to continue to lobby for alignment of minimum letting periods as a desirable or a necessary outcome?

More on Furnish Holiday Letting rules can be found at: https://www.gov.uk/government/publications/furnished-holiday-lettings-hs253-self-assessment-helpsheet/hs253-furnished-holiday-lettings-2020

Although the issue discussed here are not directly related to those of statutory registration and the forthcoming DCMS consultation, there may be potential crossover and mutual benefits flowing from one to the other?  In addition, the pressing and proven need to take action to stop known abuse of the business rate provisions could be said to help clearly evidence a similar need to ensure that any future registration scheme is robust and applicable to all those it is intended to and needs to cover. I.E., not self-selecting or applicable only to certain categories of commercial accommodation providers, for example, “professional” accommodation providers as suggested by Airbnb in their pre-emptive submission on registration to Government.

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