Private independent schools and so-called ‘arms-length’ council companies like Edinburgh Leisure could lose their charitable status and resultant business rates relief under proposals published yesterday. The independent Barclay review group’s report on non-domestic business rates has made a number of recommendations to improve the current business rates system by stimulating growth, reducing administration and increasing fairness.
Speaking on behalf of the review group, the Chair, Ken Barclay said: “We received input from hundreds of stakeholders across Scotland and further afield and are grateful for their invaluable insight.
“Although the feedback indicated a number of common themes and concerns, there was no strong appetite for a significant overhaul of the current property-based tax system.
“Many wished to remove barriers to investment and our Business Growth Accelerator would do just that. By removing the burden of rates for 13 months for anyone who improves their property, we hope to stimulate growth and bring forward investment that may have otherwise been marginal.
“New build property will also benefit from a tax break of one year, creating some breathing space for both developers and occupiers and providing a better environment for new ventures to get off the ground.
“More frequent revaluations will help reduce shocks to the system and we also believe that the large business supplement should be reduced.
“A workforce must be inclusive and diverse: childcare provision is crucial to that. So we recommend that nurseries no longer pay rates.
“It is also important to recognise that – alongside the ‘headline measures’ to incentivise investment – administrative improvements can have a hugely positive effect. A better system will reduce the burden for business and allow them to focus on growing their business rather than navigating the rates system.
“Finally, and crucially, any well-functioning tax needs to rely on principles of fairness.
Increasing fairness and transparency will increase credibility from ratepayers.
“Ratepayers providing the same goods or services should not be treated any differently because of their location, or by virtue of them operating in the public or private sector.
“We have also highlighted unfair advantages gained by anomalies within the system, and of those who deliberately avoid payment of tax. Neither is fair.
“These measures are essential for the rates system to remain credible for ratepayers and to ensure revenues are not undermined by avoidance tactics.
“We are clear, this is not about penalising certain sectors, it is about compliance, fairness and transparency.
“Our review group has used all the information and expertise available to us to produce this report, and are confident that the measures proposed can create tangible improvements.”
Welcoming the publication of the Barclay Review of Non-Domestic Rates, Finance Secretary Derek Mackay said: “This report offers recommendations for reform of the system to make it work better for ratepayers across Scotland while ensuring that the contribution they make to important local services is maintained.
“Ken and his team were tasked with finding ways to improve the current system, updating it so that it better supports business growth, encourages long term investment and enables businesses to better navigate fast-changing marketplaces.
“I know the review group have worked incredibly hard, spending more than a year engaging closely with the ratepayers across Scotland before compiling this report. I would like to take this opportunity to thank them for their substantial efforts. Having now received the Barclay Review, the Scottish Government will respond swiftly to its recommendations.”
Scotland’s voluntary sector has also welcomed the review, in which two key recommendations affecting the third sector have been put proposed.
First, the Group have recommended that arms-length external organisations (ALEOs) lose charitable rate tax relief (and sports club relief, if applicable) has been highlighted as a form of tax avoidance. The Group also recommended that private independent schools lose their charitable rate relief as this creates an unfair advantage when compared with state schools.
Another positive development to come out of the report is new rate relief for day nurseries to support childcare provision, which includes third sector providers.
Martin Sime, Chief Executive of the Scottish Council for Voluntary Organisations (SCVO) said: “The Barclay Review of Business Rates has recognised the importance of the third sector in Scotland by maintaining relief for charities which provide public benefit.
“SCVO has long believed that arms-length organisations of local authorities and private schools are not genuine third sector organisations so we also welcome the Group’s recommendations around removing charitable rate relief from ALEOs and independent schools, which it has recognised as a form of tax avoidance.”
The recommendations have not met with universal approval, however. John Edward, Director of the Scottish Council for Independent Schools, said: “The findings of the Barclay Review run completely contrary to the charity test the Scottish Parliament required all schools to undertake; would put Scottish education at a competitive disadvantage in the UK and globally; would substantially impact the work schools can do on offering bursaries and other community provision; and would set independent schools aside from all other charities – for no sound legal, political, educational or economic reason. Most of all, for a rates review, they would most likely cost the Scottish taxpayer and Government more than they seek to raise.
“The charity test for Scottish independent schools is the strictest in the world. Our high-attaining schools have worked incredibly hard over 12 years to meet that test. Any sudden alteration to rates relief would have very serious consequences for the employment of teachers, support staff and third party suppliers – as well as those 30,000 pupils educated.”
“A review of business rates should not be used to single out 0.3% of Scotland’s charities for differential treatment, when the exception to the rule is not the independent school sector – rather the council-run one.”
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