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The Barclay report

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The Barclay Report, published on 22 August, is the outcome of a review commissioned by the Scottish government last year to review non-domestic business rates, in the context of encouraging growth and stimulating investment, amid concerns around the number of vacant commercial premises in Scottish towns and cities. The report contains 30 recommendations which take account of improvements to the administration of business rates whilst maintaining a revenue-neutral stance (one of the terms of reference for the work). Derek Mackay recently announced that the Scottish government is minded to adopt the recommendations.
Basis for assessment
The review undertook to assess whether the basis for calculating business rates based on rental values was the most effective, and concluded that overall, this was still the best method to use.
Administrative improvement
As with other areas of Scottish taxation, now seems to be the perfect opportunity for the Scottish government to overhaul its systems to make them more transparent, collect more agile data and conduct a sensible and robust process for change over time. Barclay sets out an eight year ‘road map’ of its proposed changes.
In terms of day to day administration, the report has recommended that a search tool/database on rateable values is created which identifies every commercial property in Scotland. This should eliminate avoidance and to assist investors and rate payers alike. Also, Barclay calls for publication of a list of all ratepayers in receipt of rates relief from 1 April 2018 (a table of reliefs by sector is at page 23) as well as a full listing of all non-domestic property on the valuation roll. 
Furthermore, the report identified four very basic administrative requirements:
  • billing and payment should be online wherever possible;
  • both debts and refunds should be processed more expediently with streamlined systems;
  • the work of commercial rates assessment officers should be put on a standardised footing to ensure consistency of approach; and
  • assessment officers should have wider access to information sources to inform their work.
Maintaining revenue-neutrality
The report recommends that business rates should be reviewed at three-yearly intervals rather than the current five, and that a more equitable assessment scheme be utilised across the board – which is likely to be unpopular with the losers and popular with the gainers. 
For example, commercially-based activity on agricultural land and parks/recreational land should be charged to commercial rates in the same way as similar activities taking place elsewhere – resulting in estimated savings to local authorities of £3.5m a year. Charities, schools and sports clubs came under the spotlight in terms of proposals to withdraw certain reliefs between 2018/19 and 2020/21, which if implemented would raise a further £50m. 
A reform of ‘empty property relief’ is recommended to encourage landlords to seek tenants to occupy the premises, which is estimated to raise around £27m, by the next Parliament. 
Encouraging growth and stimulating investment
In exchange for the rates raising measures, other initiatives would reduce rates, such as:
  • reduction of the large business supplement to equal that in England, which would cost £62.5m per annum;
  • the introduction of a 100% relief for day nurseries from 2018 to support childcare provision in all sectors, which would cost £7m;
  • expansion of ‘fresh start’ relief to support town centres; and 
  • introduction of a ‘business growth accelerator’ which would assist businesses that have recently built, extended or renovated buildings by delaying rates increases for up to a year, at a cost of £45m.
Changes to the penalty base 
Barclay recommends that the penalties for failing to provide information to rates assessors should become civil penalties to encourage compliance (they are criminal currently). In addition, the report calls for a new form of penalty for a ratepayer failure to inform the local authority. 
The report concluded that the high volume of appeals needed to be addressed and a more up to date appeals system introduced to assist in the transparency of the commercial rates process.
Barclay calls for the introduction of a GAAR to counter avoidance and highlights two known areas of avoidance – self-catering property and empty property relief – as particular examples. If adopted, the report estimates additional revenue generation of £21m from the next parliament. 
Issue: 1372
Categories: In brief