Non-domestic rates review consultation

The Department for Finance and Personnel have published a consultation paper on the future direction of non-domestic rates in Northern Ireland. This article is a summary of the main points that will be contained within the NICVA response. 

NICVA's basic position on this issue remains unchanged. We believe that all charities should continue to be exempt from paying rates because the public benefit derived from the work of charities far outweighs any potential revenue. The charitable exemption amounts to £87million and is available to organisations established for the following purposes:

-    The advancement of religion
-    The advancement of education
-    The relief of poverty
-    Other purposes beneficial to the community 

Charitable exemption is the largest tax relief available to charities and is vital for their continuing work.

There is a focus on the financial profile of charities in Northern Ireland with the aim of assessing whether it would be possible for some organisations to make some contribution (20%) to the overall rating burden. Although 20% of registered charities operate with an income of more than £200,000, the money generated by these charities are utilised to provide social benefits. Any contribution that must be made to rates will take away from their delivery of vital services for public benefit. 

Commercial Interests 
The consultation paper states that it could be argued it is appropriate and affordable for organisations that ‘compete with commercial interests’ to make a contribution to rates. These include charity shops and nurseries. NICVA would argue that the model employed by the voluntary and community sector is entirely different than the one used by the private sector as all the money made through these ‘commercial’ undertakings is used to fund the organisation’s charitable purposes. 

The sector is increasingly being advised by government that it must explore ways in which to become more sustainable and not as dependent on government grants and project funding. NICVA believes it is unfair and unwise to penalise the sector when many organisations have heeded this guidance. 

It is worth noting that charity shops are not the cause of the economic downturn of our highstreets but a symptom. NICVA rejects the assertion within the consultation document that charity shops leads to a reduction in the overall retail mix and can represent competition for existing business. Charity shops mainly sell second hand items and, again, all of the money made is used to contribute funds to the organisation’s overall charitable purposes. Furthermore, encouraging growth in social capital through the work of charities and voluntary organisations can only help foster economic growth.

Rates avoidance 
NICVA is concerned with the assertion that sector organisations are colluding with landlords and taking over expensive properties simply to allow the owner to avoid empty property rates (Q.10c). It is argued that landlords with empty commercial properties, looking to avoid paying business rates are increasingly leasing them out to charities at heavily discounted rates (or even for a donation to the charity), often on a short-term basis under tenancies at will. There has been no evidence provided in either the voluntary and community sector discussion paper or the consultation paper to support this allegation. 

NICVA would argue that if there is evidence of this happening with the sole purpose of tax avoidance, further enforcement should occur. As a representative body, NICVA would be happy to support the department in exploring options. It is a disproportionate response to penalise the entire sector through a change of legislation if enforcement avenues have not been explored. The Charity Commission could republish guidelines for registered charities to ensure they are not falling foul of the current law.

Furthermore, NICVA would not like to see a change in legislation acting as a disincentive for well-intended Landlords from providing property or land to charitable organisations as a donation in kind. There is evidence of this occurring to organisations within the sector who utilise the property and/or land for use in carrying out their charitable purposes and could not operate without it.

Land and Property Services 
Better publication of data would improve the analysis of the effects of changes to the non-domestic rating system.

LPS maintains the non-domestic valuation roll, essentially a database of all of the rateable properties. While this is published online, users can view information for only one property at a time.

Due to the lack of a function to download or access the full dataset, undertaking effective analysis of where and how the impact of changes to the rating system would fall is made unnecessarily difficult if not impossible, and limits the insight that stakeholders (from across the public, private and the voluntary and community sectors) are able to provide to the review.

In order to allow for effective and focused consultation stakeholder responses, LPS should provide such data openly in line with expressed government policy. It would not be difficult to achieve this. The OpenDataNI platform now provides an easy way for publishing data for public access.

Furthermore, the functions of LPS is outside the scope of this current review. The consultation paper states that LPS was subject to an independent review however the scope of this has not been made public. NICVA believes that this should be made public in the interests of transparency. 

Land Value Tax 
NICVA's Centre for Economic Empowerment commissioned a research report on Land Value Tax for Northern Ireland in 2014 which makes the case for Northern Ireland to consider introducing it as an alternative to the current rating system. 

Land Value Tax (LVT) is a levy charged on land, rather than the physical property and improvements to it. It recovers the socially created value of land and speculative gains on land prices, which drives real estate bubbles. Additionally a LVT could create an incentive to develop land to its fullest potential use, because the same charge would be levied irrespective of whether the site is abandoned or put to productive use. The concept of a LVT has recently gained traction. In Scotland the Commission for Local Tax Reform has proposed the LVT as a potential model for Scotland replacing Council Tax. In Dublin the Economic and Social Research Institute has called for the local property tax to be replaced by a site valuation tax. NICVA would urge the Executive to consider LVT as an alternative and/or at the very least, carry out a land valuation to consider how much revenue could be collected. Please do not hesitate to contact Jenny McEneaney ([email protected]) if you have any questions about the content of the article or your organisation's response to the consultation. 

Click here for a guide on how to calculate how much your organisation would be liable for if the changes were introduced.

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