Scottish Tax - changes for 2023 to 2024: ready reckoners

Non-Domestic Rates

Non-Domestic Rates (NDR), sometimes erroneously referred to as business rates, are a form of property tax which help pay for local services. The Scottish Government is responsible for setting NDR policy.

The NDR ready reckoners provide an order of magnitude estimate of NDR revenue that could hypothetically be raised in addition to existing policy for 2023-24, by varying key components of the NDR tax system: the Basic Property Rate (also called poundage), the Intermediate Property Rate (IPR) and the Higher Property Rate (HPR). Tax rates cannot be amended in-year by subordinate legislation.

As set out in table 5, there are around 258,550^[12] non-domestic properties that are liable to pay NDR in 2023-24, although properties that receive a relief will receive a reduced or nilnet NDR liability^[13]. Any changes to the Basic Property Rate (poundage) would increase Gross NDR bills (before reliefs) for all NDR properties. The Intermediate Property Rate is applied to around 10,500 properties and the Higher Property Rate is applied to around 11,650 properties.

The NDR ready reckoners in Table 1 relate to the Contributable Amount of NDR which is forecast by the Scottish Fiscal Commission (SFC). The Contributable Amount is the revenue collected by Scottish local authorities and transferred to Scottish Government. The Contributable Amount is pooled in the NDR rating account and is then redistributed to local authorities as the Distributable Amount, as part of the Local Government Finance Settlement. The Distributable Amount is set in the Budget and remains unchanged during the financialyear. Differences between the Distributable and Contributable Amounts are managed through the Non-Domestic Rates rating account (the 'NDR pool')^[14].

Table 1 shows the additional benefit to the Scottish Budget of increases to NDR tax rates. A 1p increase to the Basic Property Rate (or poundage) would increase NDR revenues by around £61m. A 1p increase to the IPR would increase NDR revenues by around £6m in 2023-24. A 1p increase to the HPR would increase NDR revenues by around £45m in 2023-24.

Any combination of NDR policies in Table 1 can be broadly estimated by summing the impact of each individual change. For example, a policy which adds 1p to the Basic, Intermediate, and Higher Property Rates would raise around £112 million. The estimates for rate changes can also be scaled up or down to some extent, in that a 0.5p rise in any rate would raise half as much as a 1p increase. In addition, for any rate change, the impacts of rate increases and rate cuts are also broadly symmetric so that a 1p cut in the Basic Property Rate would reduce revenue by around £61 million.

Areas of uncertainty

The main area of uncertainty relates to assumptions made with respect to revaluation appeals following the 2023 revaluation. Once resolved, a successful revaluation appeal will have the effect of reducing total RV and therefore NDR revenues, as ratepayers are re-billed on the basis of a lower rateable value for their property. A new appeals system has taken effect for this current appeals cycle. The Scottish Government does not have any data to suggest how the changes to the appeals system will affect the lodging or processing of appeals in practice. In line with the SFC forecast, the ready reckoners are produced on the assumption that appeals losses will happen earlier than in the previous revaluation cycle because of the shorter cycles and changes in appeals processing^[15].

A further area of uncertainty relates to new NDR policies introduced from April 1st 2023. These include changes to the thresholds in the Small Business Bonus Scheme, as well as the introduction of a general transitional relief, and specific transitional reliefs for small businesses and new entries to the valuation roll located in park land that were exempt from rating prior to 1st April 2023. The effect of a change in poundage, Intermediate Property Rate or Higher Property Rate increases on these policies has not been costed as part of the ready reckoner exercise.