The report from the review of the current Scottish Non-Domestic Rates regime, led by former RBS chairman Kenneth Barclay, was issued on 22 August 2017 and inevitably some rate payers will see financial upside whereas others will be left with larger bills when the report’s conclusions are implemented. Below we consider which stakeholders will be perceived as winners and losers, following the report's most significant recommendations.

1. Winners

  • Large businesses

The report recommends that the Large Business Supplement (paid on all properties with a rateable value over £51,000) should be reduced to match the lower rate paid in England (being a reduction from 2.6p to 1.3p). The aim of this is to ensure Scotland is the best place to do business in the UK rather than being at a competitive disadvantage in the eyes of the largest organisations.

  • Renewables operators/developers

Plant and machinery valuations are currently still based on recommendations from 1993 and 1999. Emerging industries since then, including renewables operators and developers, have been calling for a review of the current valuation practices to ensure these are fit for purpose in the current market. The report recommends that this technical review should begin in the short term with any changes brought in prior to the next revaluation in 2022.

  • Those calling for more frequent revaluations

One of the biggest criticisms of the Scottish business rates system is that valuations every 5 years are too infrequent to reflect the changeable market at any given time. The last revaluation took place in 2010 (with the "tone date", being the fixed date used for evidencing such revaluation, being in 2008). This resulted in some vast and headline-grabbing increases in this year's revaluation). It is recommended that revaluations should take place every 3 years, with a reduction in time between the “tone date” and implementation of the revaluations.

  • Businesses investing in expansion

A “Business Growth Accelerator” has been recommended in the report to stimulate growth and encourage improvements to be made to properties. This incentive scheme would delay any rates increase by 12 months where a property is improved or expanded, to allow capital investment to be recovered. This applies to environmental improvements, investment in new kit or regulatory improvements. This incentive would also extend to new build properties where liability for rates would not kick in until 12 months have elapsed.

  • Town centres

An expansion of the Fresh Start Relief has been suggested to encourage occupation of vacant premises in town centres. Currently the Relief provides a 50% reduction in rates for the first 12 months to those who occupy premises that have been vacant on a long term basis. There is also a suggestion that the list of the types of properties which can benefit from the Relief should be expanded to all properties.

  • Day nurseries and other childcare centres

The report recommends that childcare nurseries (across public, private and third sectors) should receive 100% relief from 2018-19, which should be evaluated after 3 years to ensure its proper application. The rationale behind this is that a key component to economic growth is ensuring the workforce has access to affordable and convenient childcare.

2. Losers

  • Local Authorities' arm's length commercial vehicles (‘ALEOS') and Universities

Where such entities compete with the private sector, the report suggests they should not benefit from any relief. The most obvious example of this in the university sector is where student accommodation is leased to third parties (non-students) outwith term time, which competes with the local hospitality sector such as hotels and short-term serviced accommodation. The report also cites rental of venues for conferences or functions, cafes, shops and gyms as examples of activities which should incur a rates liability. Given that the removal of relief from these operators would require primary legislation, these are long term recommendations for consideration by the Scottish Government.

  • Independent schools

As they are able to register as charitable organisations, independent schools can benefit from 100% charities relief for the purposes of business rates. This is in contrast to schools ran by Local Authorities, who do not benefit from such relief. The report suggests that qualification for charities relief should be removed for independent schools in the context of business rates relief. (This would not mean that they would lose their charitable status for any other purpose than for business rates.)

  • Sports Clubs

Sports clubs currently receive a specific relief intended for the provision of local community sports facilities. The report suggests that this relief is not operating as intended and outlines as examples 2 of the most prestigious golf clubs in the country who currently benefit. As such, the report recommends that the relief should be reviewed in detail and should be available to only those offering community sports facilities, which could save around £3million per year.

  • Those currently benefitting from the Small Business Bonus Scheme

The report calls into question the effectiveness of the Small Business Bonus Scheme as currently operated, and recommends that this be evaluated to consider how it can better be utilised to support local investment and growth, perhaps by rewarding payment of the living wage or to businesses offering modern apprenticeships. Many small businesses in receipt of the 100% relief under the Scheme have advised that they would be happy to make a small contribution to the local services they receive.

  • Those currently utilising loopholes

The report acknowledges a "current avoidance tactic" which is that some property owners/occupiers opt to allow occupation of an empty property for a very short period (most commonly for storage of minimal items). If this short useage period is 42 days or more, this is viewed as resetting the empty relief period allowing the ratepayer to potentially benefit from the empty rates relief after vacating the short term occupation (although this practice is open to challenge). This tactic has been employed by some owners/occupiers again and again with the same property. The report recommends that the “reset period” is itself reset to require 6 months' occupation in any financial year, which can in some circumstances be discontinuous (in the case of pop-up uses etc. where sporadic use is appropriate). A general anti-avoidance rule included in many tax frameworks has also been recommended. This would enable authorities to tackle any avoidance schemes as they arise, without needing a specific anti-avoidance rule.