Non Domestic Rates - Often Called Business Rates

10th December 2021

Non-Domestic Rates.
Non-domestic rates (NDR), often described as business rates, are a local tax levied on lands and heritages used for non-domestic purposes in the public, private and third sectors. NDR are administered and collected by local authorities, who retain all the NDR revenue they raise to help fund the local services they provide. National NDR tax rates and reliefs are confirmed annually by the Scottish Government.

Policy
The Scottish Government acted swiftly to support businesses at the start of the pandemic and over the past 20 months, with a COVID-19 relief package totalling around £1.6 billion in 2020-21 and 2021-22. In 2021-22 we also took the unprecedented step of reducing the poundage mid-revaluation, saving ratepayers £127 million compared to an inflationary increase, effectively maintaining rates at the same level for three years in a row in Scotland. The Scottish Budget will deliver a below inflation uplift in the Basic Property Rate (‘poundage') for the fourth year in a row, to just 49.8 pence. This continues to be the lowest poundage in the UK and will save ratepayers £40 million compared to an inflationary increase.

Rates
The amount of tax due is based on the rateable value of the property multiplied by the Basic Property Rate (‘poundage’), or the Intermediate, or Higher Property Rate, where relevant, minus any reliefs to which the property is entitled.

Independent Assessors set the rateable value of a non-domestic property, which is based on the notional annual rent the property would attract on the open market if vacant and to let. Non-domestic properties are periodically revalued to reflect prevailing economic circumstances. The most recent revaluation took place in 2017, with the next scheduled for 2023 having been delayed by one year due to COVID-19. This decision, alongside the introduction of a one-year tone date, will offer certainty to businesses in the recovery period and ensure that values at the next revaluation accurately reflect the property market prevailing at the time.

The main tax rate is the poundage, which is a pence in the pound tax rate set by Scottish Ministers. Two additional rates are levied on properties with rateable value over £51,000 and over £95,000, respectively.

In addition to increasing the poundage by just 0.8p, the Scottish Budget 2022-23 confirms:

the Intermediate Property Rate at 51.1p (the poundage plus 1.3p), which will be charged on properties with a rateable value (RV) of between £51,001 and £95,000; and
the Higher Property Rate at 52.4p (the poundage plus 2.6p), which is charged on properties with a RV above £95,000.
Taken together, these policies will ensure that at least 95% of properties are liable for a lower non-domestic tax rate than anywhere in the UK.

Table 2.08: Non-Domestic Rates
Basic Property Rate ('Poundage') 49.8p
Intermediate Property Rate (rateable values between £51,001 and £95,000) 51.1p (Poundage +1.3p)
Higher Property Rate (rateable value above £95,000) 52.4p (Poundage +2.6p)
Reliefs package
In 2021-22 the Scottish Government maintained 100% Retail, Hospitality, Leisure and Aviation relief for the entire year. This is forecast to save businesses in these sectors £712 million in 2021-22. Recognising the calls from the business community for further support, the Scottish Budget will continue this relief for properties in the retail, hospitality and leisure sectors, at 50% relief for the first three months of 2022-23, capped at £27,500 per ratepayer. This will save ratepayers in these sectors an estimated £56 million in 2022-23.

The Scottish Budget 2022-23 will also expand the Business Growth Accelerator relief for property improvements to include the installation of solar panels as a qualifying improvement. The Business Growth Accelerator provides 100% relief on new builds for up to 12 months after first occupation and no rates increases for 12 months after a qualifying property improvement. The expansion will help to promote a green recovery as we strive to meet our Net Zero emissions target.

We will also extend Enterprise Areas Relief by one year until 31 March 2023 before it is reviewed. This relief provides support to some of our most dynamic industries with the greatest potential to create new employment opportunities, stimulate private investment and boost economic growth.

The budget will also maintain the following reliefs which are set annually.

Small Business Bonus Scheme relief, which has lifted over 111,000 properties out of rates altogether as at 1 June 2021.
Transitional Relief, which caps annual rates bill increases at 12.5% for Aberdeen City and Aberdeenshire offices and for all but the very largest hospitality properties across Scotland.
All the other existing non-COVID-19 NDR reliefs will be maintained in 2022-23, which is forecast to save ratepayers £745 million. To level the playing field for all non-domestic properties, we will lay legislation to help local authorities tackle a known avoidance tactic on empty non-domestic properties. This policy will provide local authorities with the discretion, in prescribed circumstances, to restrict the awarding of 100% empty property rates relief where the occupier has entered insolvency, compulsorily (by the court) or voluntarily. This will deliver greater fiscal empowerment for councils in advance of the devolution of empty property relief in April 2023.

Our NDR package for 2022-23 therefore ensures that we continue to support our business community as we emerge from the pandemic.

NDR reliefs are subject to the domestic subsidy control regime, which is governed by the UK’s international commitments on subsidy control arising from, amongst others, the EU-UK Trade and Cooperation Agreement, World Trade Organisation Membership and commitments arising from international treaties and agreements to which the UK is a party.

Recognising the impact of COVID-19, the Scottish Government chose last year to delay the implementation of the requirement that self-catering properties be let for 70 days in order to be classed as non-domestic. We will lay legislation for 2022-23 to deliver this anti-avoidance measure, which has been recommended by the independent Barclay Review of Non-Domestic Rates in order to tackle a known potential loophole for second homes.

Forecast tax revenues for NDR from 2021-22 are set out in Table 2.09 below.

Table 2.09: Scottish Non-Domestic Rates Revenue Forecasts 2021-22 to 2026-27
£ million 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27
Non-Domestic Rates 2,083 2,809 3,233 3,167 3,231 3,519