Charities and Business Rates – How Should Relief be Applied?

Charities and Business Rates – How Should Relief be Applied?

How should a local authority investigate a charity’s occupation of a property when considering if it is “wholly or mainly used for charitable purposes” and therefore eligible for mandatory 80% charitable relief on business rates?

Some local authorities have argued that each property owned or occupied by a charity should be considered separately, with effectively an examination of the activities being carried out from that individual property. Charities, on the other hand, argued that this was not the correct way to consider the application of the business rates relief and that it risked undermining a charity’s registered status.

The recent decision of the Supreme Court in London Borough of Merton Council v Nuffield Health [2023] UKSC 18 has given guidance, and much relief to charities.

What is the Law for Charities and the Property it Occupies?

A charity established under the Charities Act 2011 must be established for charitable purposes, and those purposes must:

• Fall within a defined list of charitable purposes set out in section 3(1) of the 2011 Act (e.g. for the advancement of health or the saving of lives or the advancement of education); and
• Be for the public benefit.

Charities are entitled to claim mandatory 80% relief from business rates on properties they occupy. Section 43(5) and (6)(a) of the Local Government Finance Act 1988 provides for the charitable relief where “the ratepayer is a charity or trustees for a charity and the hereditament is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities)”.

80% relief of business rates can lead to significant savings for a charity. In 2013, the Federation of Small Businesses claimed that business rates was the third biggest expense for many small businesses after rent and wages, leading to calls for significant reform of business rates from business groups. For charities, the 80% relief is crucial to allow the ongoing operation and progress the charities’ ambitions and purposes.

London Borough of Merton Council v Nuffield Health

Nuffield Health is a registered charity with a chain of gyms and hospitals, providing a range of health and wellbeing services. Nuffield Health’s stated charitable purposes are “to advance, promote and maintain health and healthcare of all descriptions and to prevent, relieve and cure sickness and ill health of any kind, all for the public benefit”.

The dispute before the Supreme Court related to the business rates payable on a private members gym operated by Nuffield Health. London Borough of Merton Council (“Merton”) argued that as the gym required a subscription, with a price point starting at £71 per month, membership was out of reach to a proportion of the public. As a result, it was argued that the operation of the gym did not qualify as being used wholly or mainly for charitable purposes because it did not meet the public benefit requirement.

There was no argument from Merton that Nuffield Health was not a charity or that the trustees of the charity were in breach of their charitable duties. Merton’s argument focused solely on whether Nuffield Health’s operation of the gym at this property met the definition of being wholly or mainly used for charitable purposes.

The Supreme Court did not agree with Merton and rejected the appeal. Giving a potted history of rating and charities law (going back as early as the Charitable Uses Act 1601 and Poor Relief Act 1601!), the Supreme Court said that the intention of Parliament in providing the 80% charitable relief was to ensure that there was simplicity, certainty and economy of administration in the application of the relief. A site by site analysis, as argued by Merton, was not in line with this.

The Supreme Court concluded that section 43(6) of the Local Government and Finance Act 1988 and the application of the relief from business rates, requires rating authorities to adopt a two-stage enquiry.

• Whether the ratepayer is a charity or not. If the ratepayer is a registered charity (as Nuffield Health was in this case), then you automatically move on to the second stage; and
• Whether the hereditament is, as a matter of fact, being used wholly or mainly for the charitable purposes of the charity. This second stage, however, is not an effective re-examination of whether the charity’s purposes are charitable. The enquiry is “factual and not a question of charity law”.

In the case of Nuffield Health, it was clear that the operation of the gym was in line with the charity’s purposes. As such, Nuffield Health was entitled to claim the mandatory 80% business rates relief.

Challenges may well continue

Business rates is a key source of income for local authorities, and as a result they do not like applying reliefs and exemptions because they have a very real impact on the cash available. Over the years, therefore, we have seen a number local authorities making claims or adopting creative interpretations of the rules to try and avoid applying reliefs or exemptions. This once again appears to be the case here.

Charities can breathe a sigh of relief, but it may not be long until the next challenge comes as a small minority of local authorities seek to bring change to business rating laws through litigation.

How much are business rates?

The cost of business rates depends on where your business is located and your rateable value of your business, you can find out an estimate on how much you will pay in business rates by using the calculator that the gov.uk provides.

What are business rates?

Business rates in the UK, also known as non-domestic rates, are a form of local taxation that businesses are required to pay on properties they use for commercial purposes. These rates are used to fund local government services and infrastructure. The rates are determined by the local government authorities and are based on the “rateable value” of the property, which is an estimate of the property’s open market rental value on a specific date.

We have significant expertise acting for landlords, tenants and rates mitigation companies in disputes regarding business rates. Do get in touch.