Charities are generally entitled to mandatory 80% relief from business rates on commercial premises which they wholly or mainly use for charitable purposes.
Whether or not a charity legitimately qualifies for this relief has been a contentious point over the last few years, particularly in relation to empty (or near empty) properties which would otherwise be liable to business rates in full.
The High Court has recently examined two cases where a charity had entered into an agreement with a commercial landlord to occupy premises for no or minimal rent in return for (i) a payment to the charity of a premium or “donation” and (ii) the charity accepting the rates liability.
In Kenya Aid Programme v Sheffield City Council the High Court made it clear that for mandatory relief to apply a charity must be able to demonstrate that it was wholly or mainly using the premises for charitable purpose. Mere occupation by the charity would not be enough. However, the test does not require an examination of whether the charity has an operational need to occupy the premises or whether it is using the space efficiently.
This was affirmed by the High Court in Public Safety Charitable Trust v Milton Keynes Council. The natural reading and meaning of the word “used” in the legislation requires consideration not only of the purpose of the use but also the extent or amount of the actual use. Eligibility for the mandatory relief from business rates therefore depends upon a charity actually making extensive use of the premises for charitable purposes (i.e. use of the building which is substantially and in real terms for the public benefit so as to justify relief from ordinary tax in the form of non-domestic rates).
As a result of these decisions, the two charities now face paying back-dated rates bills in excess of £2 million. The Public Safety Charitable Trust is currently in liquidation.
In addition, the Local Government Association has recommended that any council that has granted the mandatory rates relief to a charity should review the current arrangements and seek to recover any rates which should have been paid.
The Charity Commission has also been critical of any arrangement which may amount to an avoidance scheme and has recently published this warning to charities.
Although these look like sensible decisions to avoid the abuse of the charitable relief, they do create a disparity between the law governing the charitable relief and the private occupation for rating purposes. In particular, in the recent decision in R (Makro) v Nuneaton & Bedworth the High Court held there was a rateable occupation on the basis that the storage of 16 pallets of paperwork could not be said to be trifling or without any practical benefit. There seems therefore to be a different standard applied for private ratepayers and charities.
For more information please contact James Armstrong on 0191 211 7977.