Court of Appeal rules on rates’ avoidance schemes

Court of Appeal’s Judgements in Rossendale Borough Council v Hurstwood Properties & Wigan Council v Property Alliance Group Limited.

 I’m sure many of you reading this may have a feeling of déjà vu if you saw my previous post: the appeal train rumbles on, hence another update from me.

The two appeals centered on two business rates avoidance schemes where the properties were vacant and liable for unoccupied rates. 

One of my colleagues had an early experience of such schemes as a rates’ officer at a local billing authority circa 2009/2010 and even back then confusion reigned. Let’s hope the dismissal of this latest appeal will allow the outstanding 50 or so similar cases to be resolved quickly.

From an administrative point of view, in a standard case of a company entering liquidation, the billing account for the company concerned ends at the date of liquidation as the lease is disclaimed by the appointed liquidator and consequently the right to occupy the property is removed. The liability is therefore passed back to the owner with the relevant rates demand being raised for unoccupied rates. So far so simple.

The controversy in these cases arose from the fact that although these companies were in liquidation, the type of liquidation (Member’s Voluntary Liquidation) meant there was no time restriction in terms of appointing a liquidator.  How so and who is liable? This resulted in a situation where the Liquidated company remained liable for rates as per the lease still in place but as per The Local Government Finance Act 1998, a company subject to insolvency is not liable to unoccupied rates.

Further investigations into the incorporation of the company muddied the waters even further as it appeared to have been formed solely for this process. They would later become known as SPV (special purpose vehicles) a term we see bandied around a lot today.

In the latest appeals the councils concerned had sought to “pierce the corporate veil” of the SPV’s and pass the liability on to the landlords. They also claimed, on the basis that there were a set of pre-determined actions involved in the process with the intention of avoiding tax, that the leases should be disregarded as a matter of law.

Of the SPV issue the it was determined that it could not be said that the SPVs were used “as engines of fraud or to take an unconscionable advantage…” Judge Henderson concluded that whoever held the property on any given day was liable to pay the rates due and a valid lease meant that the SPV was liable for the rates and not the landlord.

The judgement did reference the other 50+ cases with similar proceedings currently pending that collectively account for £10 million of unpaid business rates – not exactly short change for cash-strapped Local Authorities and so a major blow for them, assuming that legal costs are on top of the lost revenue. It was a gamble that the Local Authorities lost, and other LAs will have to accept these points in future dealings with landlords who use SPVs.

Another significant case on rates mitigation is R (Principled Offsite Logistics Limited) v Trafford Council [2018] EWHC 1687 (Admin) that may also be worth looking at if this is a subject of interest.