Mandatory and discretionary charitable rate relief is generally available to charities in respect of premises used for their charitable purposes. This represents significant tax savings in business rates for a large number of charities.
Local authorities have historically considered each premises separately, so charities operating from multiple premises across several different local authority jurisdictions might be declined relief for some premises on the basis that they are not mainly used for charitable purposes. Due to a recent Court of Appeal case, local authorities will now need to consider a charity’s operations more holistically in determining eligibility.
The Court of Appeal has handed down judgment in the recent case of Nuffield Health v London Borough of Merton, which considered how non-domestic business rates relief was awarded to charities who occupy multiple premises.
What are the rules?
Under the current rules (Section 43(6) of the Local Government Finance Act 1988), relief is available from business rates for an occupied property where the ratepayer is a charity, or the trustees for a charity, and the property is occupied wholly or mainly for charitable purposes.
If this test is satisfied, then the ratepayer is entitled to a mandatory 80% relief on non-domestic business rates. The remaining 20% may be waived at the discretion of the relevant local authority.
What was the issue?
Nuffield Health, a registered charity whose objects relate to the promotion of health and healthcare and the prevention and cure of sickness, occupy a number of sites nationwide including hospitals, medical centres and gyms. The charity was refused mandatory relief on one of their gym sites by Merton London Borough Council, who argued that the property was not being used wholly or mainly for charitable purposes, as required by the relevant legislation.
Merton argued that the ‘public benefit’ test required by the legislation was not satisfied, as the membership fees for the gym were inaccessible to those of modest means and the services available to non-members were limited and did not therefore satisfy the requirement for charitable use.
Nuffield, objecting, said that the gym site was still being used for its overall charitable purposes, even if some of the activities carried on at that particular site were not, in of themselves, for the public benefit.
The High Court disagreed with Merton’s stance and awarded judgement to Nuffield, ordering the Council to repay business rates amounting to more than £930,000.
What did the Court of Appeal say?
Merton appealed the original High Court decision, but was again unsuccessful and the Court of Appeal has now given clarity on the approach that should be taken by local authorities when assessing a claim for business rates relief by charities who occupy multiple sites.
The judgment states that when assessing whether the ratepayer satisfies the public benefit test in the legislation the focus of the local authority should be on the charity’s overall activities and purposes, not just those carried on at each individual site.
A local authority therefore only needs to satisfy itself that the premises in question are being used for the charity’s specified purposes, and does not need to concern itself with whether a public benefit is being delivered at that premises.
What does this mean for charities with multiple sites?
Charities with multiple property interests which are occupied for its charitable purposes will be entitled to the mandatory business rates relief, even if one or more of those sites is not strictly operated for the public benefit, but is still used for, and contributes to, the overall charitable purposes of the charity itself.
What about HM Treasury’s fundamental review of business rates?
The case is interesting in the context of HM Treasury’s fundamental review of business rates, which was launched last July to look at how the business rates system currently works, issues to be addressed and ideas for change. Feedback from the consultation is currently under review, with a final report expected in autumn this year.
In its interim report, HM Treasury summarised commonly expressed perspectives from the responses received. This included a general view that the current system of reliefs and exemptions is overly complex and challenging, and places a significant burden on local authorities to administer. However, responses from the charities sector conveyed a contrasting view that the existing charitable rate relief is “simple, effective and easy to apply”. This recent case suggests that it might not be that simple after all, and it will be interesting to see whether the final report addresses this recent legal development.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2021.