Non-Domestic Rating Act 2023

Policy background

The Business Rates Review

2. In March 2020, the government announced a Business Rates Review with the object of reducing the overall burden on business, improving the system and considering more change in the medium to long term. During the course of the review the government published:
   1. A Call for Evidence in July 2020 setting out the terms of reference for the review and inviting views and evidence. 1
   2. An Interim Report in March 2021 including a summary of responses from the Call for Evidence.2
   3. A consultation on more frequent revaluations in July 2021.3
   4. A Final Report in October 2021 including a summary of responses to the consultation on more frequent revaluations.4
3. The outcome of the review was to make a number of changes to the business rates system including:
   1. More frequent revaluations alongside a clear plan to implement this, such as requiring ratepayers to provide information about themselves and their property and clarifying the scope for list alterations between revaluations in respect of material changes of circumstances.
   2. A range of measures to reduce the burden of business rates in England.
   3. Changes to improve the workings and administration of the business rates system including simplifying discretionary rate relief and streamlining the process for operating the central rating list and setting the multipliers.
4. In November 2021, the Department for Levelling Up, Housing and Communities published a technical consultation 5 setting out how the government intended to give effect to a number of measures arising from the Business Rates Review, some requiring primary legislation. They are described in more detail below. In August 2022, HMRC published a consultation on proposals for the Digitalisation of Business Rates6.
5. At the Chancellor of the Exchequer’s 2023 Spring Statement the government published documents relating to the implementation of policies from the Business Rates Review, namely: a summary of responses to the technical consultation7, a summary of responses to HMRC’s consultation on the Digitalisation of Business Rates8, a VOA consultation on disclosure of valuation information9, and documents estimating the anticipated impact on ratepayers of new obligations arising from the move to more frequent revaluations and, separately, the Digitalisation of Business Rates10.

More frequent revaluations and duties to provide information

6. Liability for business rates is based upon the rateable value of the hereditament which, broadly speaking, is its annual rental value. Rateable values are set independently of the government by the VOA and appear on non-domestic rating lists. There is a rating list for each billing authority and a central rating list held by the Secretary of State (typically containing network hereditaments which span many billing authority areas). The process of compiling new rating lists is known as a revaluation.
7. Between 1990 and 2010, new rating lists were compiled every five years to allow the VOA to update rateable values to reflect changes in the rental market. Due to the economic downturn of 2012, the 2015 revaluation was postponed to 2017 in both England and Wales to give businesses certainty over their rates bills while the economy recovered. Following the 2017 revaluation, the Chancellor of the Exchequer, at the Spring Statement 2018, announced that the next revaluation would be brought forward from 1 April 2022 to 1 April 2021. However, to reduce the uncertainty for firms affected by the impacts of COVID-19, the government announced on 6 May 2020 that the revaluation would be postponed. The date of the next revaluation was subsequently changed to 1 April 2023, based on rents at a valuation date of 1 April 2021.
8. During the Business Rates Review, an overwhelming majority of stakeholders supported a move to more frequent revaluations with a majority supportive of three-yearly revaluations11. The government considers that a shorter revaluation cycle represents an improvement to the fairness of the system, and its responsiveness to economic change. Therefore, in the Final Report of the Business Rates Review, the government announced that it would implement a three-yearly cycle for business rates revaluations in England starting from the next revaluation in 2023 – meaning the following revaluation would take place in 2026. The Act delivers upon this commitment.
9. The consultation on more frequent revaluations in July 2021 set out a number of reforms necessary to support the implementation of a three-yearly revaluation cycle. In particular, the consultation considered new duties on ratepayers to notify the VOA of changes to the occupier or physical property characteristics and to provide rent, lease and, where relevant, trade and other information used for valuation purposes. Following consultation, the government confirmed in the Final Report of the Business Rates Review that the new duties would be taken forward with the aim of being implemented during the 2023 rating list and that they would be accompanied by a fair and proportionate compliance regime led by the VOA.
10. Further details of how the duty and associated compliance regime should be delivered in England were set out by the government in the technical consultation in November 2021.
11. The government’s approach to the duty has been to limit the obligations on occupiers so that only information which has changed and which could be relevant to the identification of ratepayers and valuation of properties for business rates needs to be provided. The duty will require ratepayers to take reasonable steps to find out what their obligations are under the duty (for example, by reading VOA guidance). In practice this approach ensures that the duty is tailored to the circumstances of each ratepayer and does not place unnecessary burdens on those with little to report. Ratepayers will need to sign up to an online service (or a paper-based alternative) through which they can provide their details and will be supported with detailed guidance. To support the efficacy of the new duty and ensure that the VOA has access to the information it needs early enough, the Act also introduces penalties for non-compliance in line with HMRC practice.
12. The government’s technical consultation considered a wide range of views and a number of final decisions were made in light of these, captured in the summary of responses published at the 2023 Spring Statement. In relation to England, the government has opted to lengthen the amount of time ratepayers will have to notify the VOA of a change, and extend the window available to ratepayers to submit a Challenge against their rateable value from three to six months in the 2026 list. It has also committed not to introduce an additional obligation on ratepayers for an annual confirmation before it is satisfied that meeting that obligation will be straightforward. These measures are designed to support ratepayers to adapt to a shorter revaluation cycle and new ways of working, while ensuring the reforms remain deliverable.

Transitional Relief

13. At each revaluation, the government in England is required to make regulations introducing transitional arrangements12. In making the regulations the Secretary of State must have regard to the object of securing that they are revenue neutral13. At previous revaluations the government has met this requirement by providing transitional relief for those facing increases in bills but has funded this by capping reductions in bills for those benefitting from the revaluation – known as "downward caps". The Chancellor announced at the Autumn Statement 202214 that for the 2023 revaluation, transitional relief would be funded by the Exchequer and that downward caps will no longer be used. The Act facilitates the delivery of this commitment.
14. The transitional relief regulations must come into force before 1 January in the revaluation year15. In order to support more frequent revaluations and provide more time for parliamentary scrutiny of the regulations in draft, the government announced that the deadline for passing these regulations will be moved back one month to 1 February16. The Act makes this change. This will not affect local authorities’ and ratepayers’ ability to plan for these regulations as the government will continue to announce future transitional arrangements in line with the normal Budget process.

Improvement Rate Relief and Heat Networks rate relief

15. In the Call for Evidence for the Business Rates Review, the government asked how business investment and growth can best be supported through the business rates system17. The most favoured approach identified by respondents was a relief on investments of between 1 and 3 years18. Respondents felt that relief should be available in particular to green energy and decarbonisation.
16. In the Final Report, the government recognised that businesses who invest in their premises could face an immediate increase in bills. Therefore, the government announced a 100% improvement relief, providing 12 months relief from higher bills for occupiers where eligible improvements to an existing property increased the rateable value. It also announced an exemption for eligible plant and machinery used in onsite renewable energy generation and storage, such as rooftop solar panels and battery storage used with renewables and electric vehicle charging points, as well as a 100% relief for eligible low-carbon heat networks that have their own rates bill. The November 2021 technical consultation provided further detail of how these reliefs and exemptions would be delivered.
17. The object of the improvement relief is to help occupiers making improvements to their existing business premises and is not intended to subsidise general commercial property development such as new construction or refurbishment. Under powers in the Act, the government will, therefore, target the relief on existing businesses who invest in improvements which result in a positive change in the rateable value and remain in occupation of their property. The Act also confers powers on the Welsh Ministers to make regulations in relation to the improvement relief on eligible properties in Wales. The government has set out in detail in the November 2021 technical consultation how the relief will operate under the powers in the Act in England, and ran a further consultation on the draft regulations 19 from June to August 2023. The improvement relief will take effect in April 2024 and be reviewed in 2028.
18. The Act also allows the government and the Welsh Government to deliver 100% relief for heat networks from 1 April 2024. The November 2021 technical consultation provided details of how these powers would be used to target the relief at hereditaments in England being used wholly or mainly as a heat network and which have their own rating assessment. The relief will be for those networks generating from a low carbon source to ensure the policy supports decarbonisation.
19. At the Spring Statement 2022, the Chancellor announced that the heat network relief would apply from 1 April 2022 so in England, for the financial years 2022/23 and 2023/24, it has been delivered using existing local government discretionary relief powers funded by the government. The government has worked with the heat network sector and local authorities to prepare and publish guidance for this relief20. Regulations will be made under the provisions in this Act and will take effect from 1 April 2024.
20. At the Spring Statement 2022, the Chancellor announced that the exemption for eligible plant and machinery used in onsite renewable energy generation would also apply in England from April 2022. This was delivered by regulations made under existing powers21.

Data sharing gateway between Valuation Officers in the Valuation Office Agency of HM Revenue and Customs and the Northern Ireland Department of Finance (NIDOF)

21. To support their statutory functions of compiling rating lists and defending appeals, rating officials in Northern Ireland require information from the valuation officers in the VOA. This includes information such as receipts and expenditure data, leases or other information that may identify a ratepayer.
22. The Commissioners for Revenue and Customs Act 2005 (CRCA) includes a duty of confidentiality in section 18(1) which means that valuation officers cannot disclose any information unless there is a legal basis to do so, for instance, for the purposes of their functions or where there is a legislative gateway.
23. While information which does not identify a person can be shared with valuation officials in Northern Ireland under section 74 of the Digital Economy Act 2017, this was not sufficient to support the data needed for Northern Ireland’s revaluation work and to defend against appeals. Absence of this information put local authorities in Northern Ireland at risk of potential revenue loss, due to the difficulty in defending valuations.
24. Therefore, the government decided to include a specific data sharing gateway in this Act, to allow valuation information held by valuation officers of the VOA in England and Wales to be shared with their rating counterparts in Northern Ireland. This will allow them to use data from the VOA to discharge their statutory functions, and in turn provide more accurate valuations to Northern Ireland ratepayers.
25. The gateway is one way and only allows data held by valuation officers in connection with their functions to be shared with Northern Ireland rating officials. The Act includes statutory protections against any wrongful disclosure of information.

Disclosure of information held by valuation officers to ratepayers

26. During the course of the Business Rates Review, respondents indicated a preference for greater transparency with respect to the rental evidence used to calculate individual rateable values22. Greater transparency was considered important by some respondents who wanted to understand how their valuations had been arrived at, and to have greater access to the rental information used to calculate their valuation23.
27. Therefore, in the Final Report of the Business Rates Review, the government announced plans for increasing transparency in two phases:
    1. Phase 1. Improved guidance covering rating principles and class-specific valuation approaches.
    2. Phase 2. Making available analysis of rental evidence used to set a rateable value for a specific property, such as analysed price per area, and an explanation of how the evidence has been used to arrive at the rateable value.
28. Phase 1 could be delivered under existing powers and was, therefore, implemented ahead of the 2023 rating list. Phase 2 could not be delivered under existing legislation because, without an explicit statutory authority, release of such information might have constituted wrongful disclosure of information under the Commissioners for Revenue and Customs Act 2005. Therefore, the Act permits Valuation Officers to disclose to the ratepayer information that relates to the hereditament and which the valuation officer had regard to in ascertaining its rateable value. This will enable the VOA, once it has concluded the consultation process initiated by the publication of a consultation document at the 2023 Spring Statement24, to implement Phase 2 Transparency. These changes will apply to both England and Wales.

Digitalising Business Rates (DBR)

29. The final report of the Business Rates Review stated that "modernisation and digitisation…would be an effective way to support firms to navigate the [business rates] system"25. The government introduced DBR reforms in England and Wales in this Act as a step towards this goal.
30. DBR will connect the business rates information held locally by billing authorities with HMRC tax data. This will help to modernise the business rates system and improve the data available to central and local government. The government issued a public consultation on DBR in July 2022 and in its response, published in March 2023, set out its plans to legislate for DBR.
31. The Act creates a new statutory duty on ratepayers to provide to HMRC an up-to-date taxpayer reference number. Ratepayers will provide this information using a new online service. In order to simplify the experience for ratepayers, this will be the same service through which ratepayers will provide information to the Valuation Office Agency to meet the other duties on ratepayers being introduced in this Act (set out at paras 6-12 above). HMRC will use the information provided via the service to match the ratepayer to their tax data. An accompanying light-touch penalties regime will be introduced alongside the duty to provide a number, in order to encourage compliance.
32. The matching of ratepayers’ property data to their tax data will provide central and local government with a more holistic view of businesses. The availability of better data could facilitate the more targeted design of – and improved compliance with – business rates relief schemes. In order to achieve this, certain information will need to be shared between HMRC and billing authorities (such as information about which reliefs ratepayers are in receipt of). The Act therefore also provides for a two-way exchange of information between HMRC and billing authorities (subject to data protection safeguards).

Alterations to lists: matters not to be taken into account in valuation

33. Revaluations allow the rateable value of a hereditament, and therefore rate bills, to be updated to reflect changes in economic factors, market conditions or changes in the general level of rents. Between revaluations, the determination of rateable values can only be changed to reflect "material changes of circumstances" including, for example, physical changes to the property or the locality.
34. During the coronavirus pandemic, the VOA received a large number of checks (a prerequisite to challenging rateable values) arguing that interventions concerning the use of property (such as requirements to close businesses or to maintain social distancing to comply with health and safety legislation) were a material change of circumstance.
35. Matters such as the impact on rental values of coronavirus or interventions in response to coronavirus are part of the general market conditions and, as such, should where necessary be reflected in updated rateable values at revaluations and not through material change of circumstances challenges to the rating lists. Therefore, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021 ensured that, with retrospective effect, coronavirus and the government’s response were not a material change of circumstance. The government has instead provided support to ratepayers affected by coronavirus through business rates relief.
36. In the consultation on more frequent revaluations in July 2021, the government announced it was reviewing more widely when the material change of circumstances provisions would apply to ensure they reflected the scope of their original intention. The Final Report of the Business Rates Review announced that the government would legislate to clarify that factors arising from legislation, regulations, licensing changes, or guidance are not in scope for material change of circumstances claims in relation to England. The Act implements this measure.
37. Further details on the reform of the material change of circumstances rules were included in the technical consultation of November 2021 and then included in this Act. The reform of the material changes of circumstances rules will not prevent matters such as changes in legislation ever being reflected in rateable values – they will merely ensure that these matters are only reflected at revaluations. The government, in the Final Report of the Business Rates Review, decided against any further restriction on material changes of circumstances than those now included in the Act.

Administrative improvements to the system

38. The Business Rates Review also identified a number of changes which can be made to simplify and improve the business rates system. These were outlined in chapter 6 of the technical consultation in November 2021. Some of these required changes to primary legislation and are, therefore, included in the Act:
    1. Moving the powers for the Secretary of State to manage the contents of the central rating list in England from regulations to directions. Under the prior arrangements, the Secretary of State was obliged to make minor administrative regulations merely to maintain the accuracy of the central rating list. Regulations were needed when, for example; a company on the central list sells its assets to another company; or where a new company joins the central rating list. The powers of direction will be used in place of the existing regulation powers and allow for faster and more efficient operation of the central rating list. The provisions in the Act replicate those in clause 11 of the Local Government Finance Bill in the 2016/17 session which did not reach Royal Assent. The Act also makes provision for charitable relief in England and Wales and unoccupied property relief in England to be available on the central rating list (a similar measure was also part of the Local Government Finance Bill in the 2016/17 session at clause 10).
    2. Simplification of local discretionary rate relief in England. The powers for billing authorities to award discretionary relief were significantly widened as part of the devolution reforms contained in the Localism Act 2011. However, these reforms left in legislation a restriction on applying or changing discretionary relief decisions six months after the end of the financial year. The Act removes this restriction leaving local authorities to decide whether and when to award retrospective discretionary relief in their areas.
    3. Closing a lacuna in the completion notice procedure in England. The Act enables billing authorities to serve a completion notice on refurbished buildings (which were previously included in the list but were removed) and return them to the list, using the same completion notice procedure as for new buildings.
    4. Improving the administration of the multiplier. The Act allows the government to ensure annual increases in the small business multiplier and the national non-domestic multiplier in England are automatically linked to the Consumer Prices Index (CPI) rather than the Retail Prices Index (RPI). This is something which has been government policy for several years and is currently delivered through an annual statutory instrument. The Act allows the government to provide by regulations that either multiplier is indexed by a figure less than CPI in England. And the Act also allows the government to determine by regulations which ratepayers are entitled to the small business multiplier in England.
39. Also, the Act addresses a technical flaw in the legislation governing the main non-domestic rating account in England. The purpose of that account is to show how much business rates income has been paid by local authorities to the government; how much has been used as part of the Business Rates Retention Scheme (BRRS); and how much has been used to finance other grants to local government. The original legislation contained an error and as a result the government was unable to debit from the account all the actual amounts that had been paid to local government. The account therefore erroneously showed a credit – despite this money having already been passed to local government. The Act corrects this error, and allows for the removal of this erroneous credit and ensure that, in future, the account transparently and accurately records the amounts that have been received and paid by the government, as originally intended.