Non-domestic rates reform: analysis of responses to consultation on Barclay implementation

13. Barclay Review Recommendation 22 – Close Small Business Bonus Scheme loophole (self-catering)

13.1 Questions 20 and 21 relate to Recommendation 22, "To counter a known avoidance tactic for second homes, owners or occupiers of self-catering properties must prove an intention to let for 140 days in the year and evidence of actual letting for 70 days." This recommendation intends to tackle a loophole for second homes identified by the Barclay Review. Presently, occupiers should notify the Assessor and request a move from domestic to non-domestic classification if their property is available to let for 140 days or more a year; there is no requirement for evidence of actual letting to be provided. Therefore, owners of second homes can potentially avoid both council tax and non-domestic rates on their property by claiming that it is a self-catering property when it is not and then potentially claiming the Small Business Bonus Scheme if they qualify. Recommendation 22 will ensure that any self-catering property must be intended to be let for 140 days a year and actually let for 70 days a year in order to qualify as non-domestic. The Barclay Review did not specify whether there should be any discretion in the application of the 70 day criterion.

Question 20 - Should there be any local discretion in the application of this policy?

13.2 There were 57 responses to Question 20. The largest respondent category was Local Authorities. There were no responses from the Independent Education Sector or the Other Sector. A breakdown of respondent categories can be found in the table below.

Table 20: Respondents Categorised

13.3 Opinion was divided, Representative Bodies, Businesses and Individuals were in favour of discretion, whereas Chartered Surveyors and the Assessor that responded to this question did not believe in local discretion. Local Authorities were split between agreement and disagreement with the proposal.

Question 21 - If your answer to Question 20 is yes, under what circumstances should this discretion apply?

13.4 There were 39 responses to Question 21. Representative Bodies and Local Authorities were the largest respondent categories. The Independent Education Sector, Chartered Surveyors and the Other Sector did not respond to Question 21. A breakdown of responses by respondent categories can be found in the table below.

Table 21: Respondents Categorised

13.5 Responses mentioned "extenuating" or "exceptional" circumstances which may be outwith the ratepayer's control as a criterion for local discretion to be used. Examples included:

• "Landslides, floods and fire" (Argyll and Bute Council).
• Seasonal/environmental based discretion (with specific reference made to outer islands by the Scottish Property Federation). For example, where travel to and from an island is limited to ferries which can be restricted due to the weather or season, this would then impact the amount of time for which any properties on the island can be let.
• When personal circumstances arise, such as a bereavement.

13.6 The responses raised a number of issues:

• Challenges around validating eligibility. Scottish Borders Council for instance stated that there may be "difficulty in assessors/councils being able to validate evidence of an intention to let for 140 days in the year and evidence of actual letting for 70 days." Thus, they called for ratepayers to be responsible for declaring intention to let and actual letting, with sanctions applied if the declaration was inaccurate.
• Clarity is needed with regard to the timescale of the 70 day letting criterion. The Barclay Review does not state whether this is a financial year, rolling year or calendar year. The Institute of Revenues, Rating and Valuation Scotland (IRRV) highlighted an exception in the Welsh system; properties "must meet the multiple of 70 days total over the three or five years" (IRRV). This option gives the ratepayer more flexibility if extenuating circumstance did come to light.
• Local discretion may cause inconsistencies across Scotland, "discretionary decisions will lead to inconsistency of approach across authorities with the potential for greater confusion / higher levels of appeal" (Glasgow City Council).
• Self-catering businesses may never reach the 70 day letting criterion. To counter this, a suggestion was made by the Scottish Borders Council and Argyll and Bute Council that they should be kept or reinstated on the Council Tax Register.
• This policy change for the "micro-hospitality sector would be inequitable, and there must be further consideration of this in moving ahead with this recommendation" (Scottish Chamber of Commerce). As stated by Airbnb, the Scottish Government is currently exploring the "regulation of short-term letting", therefore they asked that the Barclay Review "await the Government's recommendations on letting the sector before redefining business rates which would impact the sector".