Should charities be forced to pay rates?
Any review of the Northern Ireland non domestic rating system would not normally concern charities, as they are exempt from rates.
But the consultation paper raises specific questions about whether larger charities should start to make a contribution to the public purse and raises similar issues for operators of residential homes, several of whom are also charitable organisations.
The review is explicit in stating that its intention is not to increase the £592 million currently raised through business rates, but to examine if the burden could be spread more fairly and part of that is to look at circumstances where organisations are either exempt from or receive reductions in their bills.
Currently Northern Ireland charities receive total exemption from rates. In England they are expected to pay 20% so there is clear precedent elsewhere for them to make a contribution to the public purse.
Rates are currently entirely raised and spent in Northern Ireland with monies collected going to both local authorities and central government. In the case of local authorities they account for around 70% of their revenues.
At present in Northern Ireland rates exemptions and reliefs total £221 million. The largest chunk of this is the £87 million enjoyed by organisations who pay no rates at all, and the majority of these are charities.
The consultation paper explains what it means by fairness in taxation: “Although this can sometimes be difficult to define it is often thought that a particular tax should first of all treat businesses in similar circumstances the same way and secondly, ensure that those businesses that are in a more advantageous position should bear a larger proportion of the tax burden.
“It could be argued that a system of reliefs creates an uneven distribution of the rating burden, which in itself could be considered unfair as businesses will be treated differently for no other reason than the industry they operate in or the size of the property they occupy. This begs the question as to whether it would be better for the whole system of reliefs (that essentially are a form of government subvention) to be abolished so that all non domestic ratepayers are treated equally, with their liability being based solely on the rental value of their property, rather than the application of various reliefs.”
This is a radical position that would affect every charity in Northern Ireland.
But the report goes on to refine its focus.
Its authors have analysed the size and scale of charities in Northern Ireland and concluded that 70% of charities have an income of less than £100,000 and 80% have incomes of less than £200,000. In contrast charities with an income of more than £200k make up less than 20% of the sector, but account for more than 80% of the total income.
This is where any pressure for removing exemptions is likely to lie.
The report states: “Given the evidence outlined above it could be argued that it is both appropriate and affordable for some of the organisations currently benefiting from a 100% exemption to make some contribution towards their rates.”
However it reveals that the Department of Finance and Personnel’s view is that if any changes are to be made they should only apply to those charities that compete directly with commercial undertakings.
It cites charity shops and day nurseries (although, of course, many charities compete with the private sector for the government contracts for the provision of front line services).
The report is especially critical of charity shops, stating: “It is the case that once a property becomes vacant, rather than pay the 50% rates liability, landlords often rent (or where the market is depressed allow the use and occupation of) these premises out to charities thereby qualifying for 100% relief (irrespective of the size or location of the property).
This has led to a situation where charity shops have become a significant part of the high street in many towns, selling goods such as second hand furniture, clothes and books.
It concludes: “It is unclear to what extent these outlets have had a positive impact in the local area as they have led to a reduction in the overall retail mix and can represent competition for existing business. In addition it is questionable whether sufficient incentives now exist for landlords to put these premises into commercial (and rateable) occupation.”
There is also scrutiny of the exemptions enjoyed by residential homes originally introduced to encourage more organisations to provide care homes.
The report here states: “Whilst there may be merit in providing rate relief in relation to the care of the elderly; it is perhaps less clear who actually benefits from this exemption. Indeed does this cost saving for residential homes represent a reduced cost and therefore an increase in net revenue for the provider or is it passed onto residents in the form of lower charges? There is also an issue around the appropriateness of the relief given that residential homes benefit from the services (both locally and regionally) that rates pay for.”
This interpretation of events is unlikely to find much favour with charities who operate such premises. The reality is that their charges are effectively fixed by the health trusts that fund them and they are already beginning to complain that these are set so low that they will be unable to afford to pay the “living wage” when it is introduced next year.
The consultation ends on the 25th January
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