Non-domestic rates - procedures in proposals and valuation notices etc: consultation

Part 1: Policy Background

1. The non-domestic rates system has its historic origin in the Lands Valuation (Scotland) Act 1854 and was further developed with the Local Government (Scotland) Act 1975 and other Scottish legislation.

2. In relation to Non-Domestic Rates (NDR), independent Scottish assessors are responsible for maintaining the non-domestic valuation roll under section 1 of the Local Government (Scotland) Act 1975, and providing rateable values (RVs) to the relevant local authority under section 3 of that same Act. Local authorities administer and collect NDR and council tax for their area (as well as NDR for any national designated utilities entered on the valuation roll for that area but located elsewhere in Scotland).

3. NDR liability on a property is the tax rate (poundage plus any supplements) multiplied by the property's RV minus any reliefs that the property is eligible for. Appeals on the entry of a property in the valuation roll can be made to the assessor by the owner, proprietor or tenant within prescribed timescales. Appeals are heard by valuation appeal committees (VACs) or can be referred instead to the Lands Tribunal for Scotland in prescribed circumstances. Onward appeals, exercisable only on points of law, are to the Lands Valuation Appeal Court.

4. The functions of VACs are scheduled to transfer to the new Local Taxation Chamber of the First-tier Tribunal for Scotland on 1 January 2023. The draft regulations for the transfer of VACs' functions are the subject of a separate consultation - 'Local taxation - Valuation Appeals Committees etc: transfer of functions' - which can be accessed at: https://consult.gov.scot/justice/local-taxation-vac-etc-transfer-of-functions

5. RVs are reviewed periodically at 'revaluations' which historically have occurred every five years and been based on rental values two years prior (the 'tone date'). The independent Barclay Review of Non-Domestic Rates ("the Barclay Review") published in 2017 recommended moving to three yearly revaluations with a one-year tone date which the Scottish Government accepted. Due to the COVID-19 pandemic however and the likely unsuitability of a tone date of 1 April 2020 for the 1 April 2022 revaluation in reflecting post-pandemic rental values, the Scottish Government delayed the revaluation by one year to 1 April 2023 but decided to also bring forward the implementation of a one-year tone date for that revaluation onwards. The next revaluation, in 2023, will therefore have a tone date of 1 April 2022.^[1]

6. The Barclay Review also noted under Recommendation 19 of its Report: Reform of the appeals system is needed to modernise the approach, reduce appeal volume and ensure greater transparency and fairness.

7. The Barclay Implementation Advisory Appeals sub-group ("the Appeals sub-group") was established in 2018 to inform advice to Scottish Ministers in respect of the implementation detail of a number of the Barclay recommendations. It published its Final Report in October 2019 and the views of the group have been taken into consideration in designing the reforms to the appeals system set out in The draft Valuation (Proposals Procedure) (Scotland) Regulations 2022 included in this consultation.

8. The Non-Domestic Rates (Scotland) Act 2020 ("the 2020 Act") creates a two-stage appeal system whereby owners, tenants or occupiers must lodge a proposal under section 3ZA of the Local Government (Scotland) Act 1975 with the assessor if they disagree with the valuation of their property. Under the new system, owners, tenants or occupiers will have to lodge a proposal with the assessor and this will be a precursor to lodging an appeal with the Scottish Tribunals.

9. The two-stage appeals system is intended to improve information-sharing between parties early on in the process without requiring the involvement of the Scottish Tribunals, the majority of appeals being already settled amicably between the assessor and the appellant, but only after the VAC Secretary has issued a citation for hearing as the hearing date triggers statutory deadlines for sharing information. In practice, numerous appeals are withdrawn at the last minute or are not attended by the appellant on the day of the hearing.

10. The draft Valuation (Proposals Procedure) (Scotland) Regulations 2022 provide for the procedures to be followed for proposals. Respondents may wish to consider these draft regulations in conjunction with the draft regulations providing for procedural rules in the First-tier Tribunal post-transfer when hearing cases under the transferred functions, which are set out in consultation 'Local taxation - Valuation Appeals Committees etc: transfer of functions' – as the proposal and the appeal stages for NDR cases are sequential (i.e. a proposal must be made before an appeal can be made). The Valuation Timetable (Scotland) Order 1995, as amended by orders - the drafts of which also form part of this consultation - will provide for the timescales for making and disposing of proposals and for lodging appeals.

11. The two-stage appeals system is scheduled to come into effect at the same time as the transfer of VAC functions to the Scottish Tribunals. This was originally scheduled to happen on 1 April 2022 to coincide with the previous date of the next revaluation, however due to the delay to revaluation to 1 April 2023 and the need to set up a new Chamber of the First-tier Tribunal for Scotland (the Local Taxation Chamber) in order to absorb the functions of VACs, the transfer date, and the move to a two-stage appeals system will both take place on 1 January 2023.^[2]

12. The draft Valuation Timetable (Scotland) Amendment (No. 2) Order 2022 sets the timescales for lodging proposals, making a decision on them, etc. as well as appeals timescales.

13. In order to ensure greater transparency and fairness in the NDR system, the 2020 Act also creates the requirement under section 1B of the Local Government (Scotland) Act 1975 that assessors publish a draft valuation roll before revaluation and the draft Valuation Timetable (Scotland) Amendment Order 2022 sets the date for this. The 2020 Act also creates the requirement that assessors send a draft valuation notice to owners, tenants or occupiers at this point. These notices are covered, in part, by the draft Non-Domestic Rates (Valuation Notices) (Scotland) Regulations 2022.

14. The Appeal sub-group called for certain information to be included in valuation notices in order to improve the transparency of non-domestic property rating. This is addressed in the draft Non-Domestic Rates (Valuation Notices) (Scotland) Regulations 2022.

Proposed new regulations and orders

15. The draft regulations and orders are attached at Annexes A, B, C, D and E. The views of the Appeals sub-group were sought prior to finalisation of the policy instructions for the draft Valuation (Proposals Procedure) (Scotland) Regulations 2022.