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Waverley Borough Council Committee System - Committee Document

Meeting of the Executive held on 02/11/2004
National Non-Domestic Rates - Rate Relief



Hardship provisions of the Local Government Finance Act 1988

1 Section 49 of the Local Government Finance Act 1988 gives a billing authority discretion to reduce or remit the payment of rates where an authority is satisfied that the ratepayer would (a) sustain hardship if it did not do so, and (b) it is reasonable for the authority to do so having regard to the interests of its Council Tax payers. For Member’s convenience, Section 49 ss (1) and ss (2) is reproduced below:-

Section 49 - Reduction or remission of liability

(1) A billing authority may -

(a) reduce any amount a person is liable to pay to it under ss 43 or 45 above, or
(b) remit payment of the whole of any amount a person would otherwise be liable to pay to it under ss 43 or 45 above.

(2) But an authority may not act under this section unless it is satisfied that-

(a) the ratepayer would sustain hardship if the authority did not do so, and
(b) it is reasonable for the authority to do so, having regard to the interests of persons subject to its council tax levy.

2 The Office of the Deputy Prime Minister has issued a Guidance Note ‘Non-domestic rates: Guidance on rate reliefs for charities and other non-profit making organisations’ which contains guidance on Hardship and the following is an extract from that Guidance Note:-
7.1 Section 49 to the Local Government Finance Act 1988 gives billing authorities the discretion to reduce or remit the payment of rates for any ratepayer. A billing authority can reduce or remit the payment of rates where it is satisfied that the ratepayer would sustain hardship if it did not do so and it is reasonable for it to do so having regard to the interests of its council tax payers.

7.2 Whist it is for each authority to decide upon the facts of each case whether to exercise its powers under Section 49 - and to judge the extent of these powers - authorities may wish to bear the following guidance in mind:-
(iv) 75% of the cost of any reduction or remittance of rates is offset against an authority’s payment into the national non-domestic rates pool: 25% must be borne locally and met by the authority;

(v) The ‘interests’ of the council taxpayers in an area may go wider than direct financial interests. For example, where the employment prospects in the area would be worsened by a company going out of business, or the amenities of an area might be reduced by, for instance, the only provider of a service in its area;

(vi) Where the granting of relief would have an adverse effect on the financial interests of council taxpayers, the case for a reduction or remission of rates payable may still on balance outweigh the cost to council taxpayers if the other interests of the council taxpayers are greater;

(vii) Hardship rate relief may in some cases constitute state aid, and may need to be notified to the European Commission – see chapter 9 below;

(viii) The hardship caused to a ratepayer may be self-evident, for example where a business has been affected by severe loss of trade, due to external factors such as natural disasters. However, authorities may wish to consider how the business can demonstrate such loss of trade or business. For example, do accounts, order books, till receipts or VAT returns show a marked decline in trade compared to corresponding periods in previous years?

(ix) Authorities should be clear in awarding relief that it will be granted only for the period for which there is clear evidence of hardship for the ratepayer concerned; and

(x) To guard against fraudulent claims, authorities should satisfy themselves that the claim is from a ratepayer suffering genuine hardship. 9.1 Whilst the Non-Domestic Rating (Discretionary Relief) Regulations 1989 do not apply to decisions in respect of hardship relief under section 49, billing authorities should nonetheless consider establishing clear rules for notifying ratepayers as to their decisions under section 49 as soon as is practicable.
9.2 Applications for relief on the grounds of hardship need not be in writing and relief can commence when the new applicant meets the requirements. Hardship relief should be reviewed regularly and should be given for short fixed periods which could be renewed following a review rather than for extended periods without review but can straddle financial years.” 9.1 The following should not be taken as an exhaustive guide to the complex rules and cases of EU State aid. Of necessity the following is just a sketch of the state aid issues which may affect the granting by billing authorities of rate relief.
9.2 European Union competition rules generally prohibit Government subsidies to businesses. Relief from taxes, including non-domestic rates, can constitute state aid. Billing authorities should bear this in mind when granting discretionary rate reliefs. Empty property and transitional reliefs are regarded as part of the determination of liability, applied equally to all ratepayers, and so are not considered to be state aid.
9.3 Rate relief for charities and non-profit making bodies is not normally considered to be state aid, because the recipients are usually not in market competition with other businesses. However, if the charities or non-profit making bodies are engaged in commercial activities or if they are displacing an economic operator or if they have a commercial partner, rate relief could constitute state aid and the rules set out below will apply.
9.4 Hardship relief can also constitute state aid, as can relief under the village shop and farm diversification schemes. In practice, however, aid to village shops, most local, ‘commercial’ charities and other small-scale, local service organisations (B&Bs, small retailers, child-care facilities, etc.) will not be caught by the state aid rules, as long as they are independent, family-owned businesses, because they are deemed incapable of affecting intra-Community trade. Any manufacturing operation, on the other hand, however small-scale, is normally deemed to be capable of affecting intra-community trade, so rate relief for butchers and farmers for example, producing cheese, sausages, cider and other foodstuffs would be state aid.
9.5 There are also general exceptions from the state aid rules where the aid is below a ‘de minimis’ level. This level is €100,000 (around (63,000) to any one business over three years. The de minimis level applies to all de minimis aid received, including other Government subsidies or grants, in addition to any rate relief. This de minimis threshold does not apply in certain excluded sectors, including agriculture, fisheries, transport, coal and steel, and aid to export-related activities, where any amount of rate relief is state aid. As far as agriculture is concerned, rate relief for farmers would not be eligible for de mimimis aid, but rate relief for farm diversification projects, which do not involve the production, processing and marketing of agricultural goods, would be eligible. There are a number of administrative requirements relating to de minimis aid and authorities considering using it should contact the DTI’s State Aid Policy Unit. The exchange rate that applies is the one for the month in which the aid is given.
9.6 Guidance on State Aid is available from the DTI’s State Aid Branch.
9.7 Where relief does constitute state aid, it may need legal clearance from the European Commission. Authorities that are considering granting any hardship relief, charity relief or farm diversification relief which would be caught by the state aid rules and would bring the total aid to the business concerned above the de minimis level, or granting any amount to businesses in the excluded sectors, should contact the ODPM. The ODPM will seek clearance from the Commission, if necessary. If Commission clearance is needed, the relief should not be paid until clearance has been granted.”