Any hereditament whose owner is a company which is subject to a Winding Up Order under the Insolvency Act 1986 or which is being wound up voluntarily under that Act is exempt from business rates. PAG Management Services was incorporated to manage and coordinate an artificial scheme whose sole reason for existence was to exploit this exemption. The scheme was struck down by Norris J in SOS for BIS v PAG Management Services Ltd (2015) EWHC 2404 (Ch), not because it was contrary to the public interest ( ratepayers can organise their affairs so as to avoid paying rates), but because it was a misuse of the insolvency legislation and commercially improper to use a company in liquidation as an asset shelter.

The main elements in the Enterprise Bill announced in the Queen’s Speech include reforming the Valuation Tribunal business rates appeals system and allowing for the VOA to share information with local authorities.

Andrews J began her Judgment in R (Nicholson) v Tottenham Magistrates and Haringey LBC [2015] EWHC 1252 (Admin) as follows:-

“1. This case raises issues of significant public interest to both council tax payers and local authorities relating to the costs sought by local authorities with regard to the enforcement of unpaid council tax.

2. Regulation 34(7) of the Council Tax (Administration and Enforcement) Regulations 1992 (SI 1992 No.613) (“the Regulations”) provides that when granting a liability order the court shall make an order reflecting the aggregate of the outstanding council tax and “a sum of an amount equal to the costs reasonably incurred by the applicant in obtaining the order.” In England there is no legislative cap on those costs; in Wales there is a proviso that the costs “including those of instituting the application under paragraph (2), are not to exceed the prescribed amount of £70.”

3. The issue at the heart of this claim is what is required, prior to making an order for the costs claimed, to satisfy the court that the requirements of the Regulation are met, i.e. that those costs have been reasonably incurred by the local authority in obtaining the liability order.”

“6.  The challenge to the legality of the order focuses on the absence of information that the Claimant says was necessary for the Magistrates to address their minds to the question whether the essential causal connection between the costs claimed and the obtaining of the order had been established by the Council, allied with the complaint that the Magistrates appear to have confused the reasonableness of the amount of the costs with the question whether that sum was reasonably incurred. “

Andrews J stated the position as follows:-

“33. The proceedings before the Magistrates were civil in nature, but the Civil Procedure Rules do not apply to them. Thus there is no provision for the assessment of costs, as there would be in normal civil litigation. By contrast with the Civil Procedure Rules, there are no provisions in the Regulations requiring the costs to be reasonable or proportionate, nor is there any requirement that any doubt be resolved in favour of the paying party. The Magistrates were bound to decide the matter of costs in accordance with the Regulations.

34. As a matter of straightforward construction of Regulation 34(7) that means that the Magistrates must be satisfied:

 (i) that the local authority has actually incurred those costs;

 (ii) that the costs in question were incurred in obtaining the liability order; and

 (iii) that it was reasonable for the local authority to incur them.”

“36. … there are no authorities that specifically address these Regulations, and this is an opportunity for the Court to afford some general guidance as to their interpretation and scope.

37. I doubt whether any assistance in this regard can be derived from authorities in relation to the CPR or the pre-CPR costs regimes, as the Regulations do not refer to “costs of the proceedings”. There is some limited assistance to be derived from the Regulations themselves as to what kinds of costs are included. Regulation 34(5) sets out the circumstances in which the application for a liability order shall not be proceeded with. The respondent must pay or tender to the local authority any unpaid council tax plus “a sum of an amount equal to the costs reasonably incurred by the authority in connection with the application up to the time of payment or tender.”

38. … I agree that as a matter of necessary implication, and for the policy reason referred to by counsel, costs incurred in obtaining the order must encompass costs incurred in connection with the application for a summons. Plainly the costs would encompass, but are not confined to, the fee for issuing the summons: the expression “in connection with the application” is wider than “the costs of making the application“. However, there still has to be a sufficient link between the incurring of those costs and the application for a summons.

39. … it is difficult to draw any analogy between council tax and the scope of costs awarded to prosecuting authorities in criminal cases, because in the latter scenario there is a discretion to award costs. Moreover, as in cases falling under the CPR, it is possible to have an assessment of the reasonableness and proportionality of the costs; and the nature of the criminal investigations is very different.”

“42. It seems to me that in principle the intention in the Regulations is to enable the local authority to recover the actual cost to it of utilising the enforcement process under Regulation 34, which is bound to include some administrative costs, as well as any legal fees and out of pocket expenses, always subject to the overarching proviso that the costs in question were reasonably incurred. However, bearing in mind the court’s inability to carry out any independent assessment of the reasonableness of the amount of those costs, the Regulations should be construed in such a way as to ensure that the costs recovered are only those which are genuinely attributable to the enforcement process.

43. Apart from the costs of the final notice, … it seems to me, both as a matter of language and purposive interpretation, that it would be difficult to justify including any other costs incurred prior to the decision being taken to enforce (which is a matter of discretion under Regulation 34(1)). In order for costs to be incurred in connection with the making of the application, a decision to make such an application must have been taken. It is only then that the process of enforcement gets underway. Indeed Regulation 34(5), which includes that phrase, is specifically addressing the scenario where a summons has been issued, and thus the decision to enforce has been taken.

44. That does not necessarily mean that the costs have to be incurred on or after the date on which the summons was issued – once the decision to enforce has been taken there may still need to be checks carried out to ensure that the summons is issued in the correct amount and against the right person. However, what the court is concerned with are the costs incurred by the applicant in obtaining the liability order (or in seeking to obtain one before the respondent capitulates). I note that in Wales the proviso specifically refers to the cap including “the costs of instituting the application” which is consistent with that reading of Regulation 34(5). On the face of it, therefore,  … the costs of taking the decision to exercise the discretion to enforce would appear to fall on the wrong side of the line.

45. I bear in mind the practicalities of the enforcement system; time in the Magistrates’ court is limited and given the large number of summonses issued, it would not be practical for the local authority to carry out and provide a detailed calculation of the actual costs incurred in each and every case (save possibly where the actual costs are well in excess of the norm, for example if the local authority has to instruct counsel to turn up and argue specific points of law raised by the taxpayer in defence).

46. In principle, therefore, provided that the right types of costs and expenses are taken into account, and provided that due consideration is given to the dangers of double-counting, or of artificial inflation of costs, it may be a legitimate approach for a local authority to calculate and aggregate the relevant costs it has incurred in the previous year, and divide that up by the previous (or anticipated) number of summonses over twelve months so as to provide an average figure which could be levied across the board in “standard” cases, but could be amplified in circumstances where there was justification for incurring additional legal and/or administrative costs. If that approach is adopted, however, it is essential that the Magistrates and their clerk are equipped with sufficient readily available information to enable the Magistrates to check for themselves without too much difficulty, and relatively swiftly, that a legitimate approach has been taken, and to furnish a respondent with that information on  request.”

“50. In principle there is no reason why a local authority should not decide to limit the costs it claims to the costs in connection with issuing the summons, although in practical terms that approach provides no incentive to the respondent to pay up after the summons is issued. What matters is that the costs that it does decide to claim are properly referable to the enforcement process.

51. If the necessary causal link is established to the satisfaction of the court then the next question is whether the costs claimed have been “reasonably” incurred. It may be that the method by which the costs are calculated demonstrates this without the need for further evidence; but there may be individual cases in which it would be open to the respondent to argue that the costs were not reasonably incurred, for example, if it was not reasonable for the local authority to take steps to enforce payment, or if the costs which were incurred were excessive – e.g. if the local authority sent a QC along to argue a simple point of law in the Magistrates’ Court.

52. Establishing that the costs were reasonably incurred is not the same thing as establishing that the costs were reasonable in amount. Of course, the latter may have a bearing on the former, since if the costs appear to be excessive, or disproportionate, there may be legitimate grounds for querying whether it was reasonable of the local authority to incur costs in that amount. However so far as proportionality is concerned, one has to bear in mind that in the present context where the recoverable sums are relatively small (though by no means insignificant to many of those who have to pay them) it is inherently likely that there will be a disparity between those sums and the costs of recovering them. On the other hand, the practice of processing applications in bulk could drive the average costs of obtaining liability orders down rather than up.

53. Given the absence of any independent assessment, the scope for abuse of the system is self-evident, and that makes it all the more important that due process is observed. Therefore, it is incumbent upon the Magistrates to reach a proper judicial determination of the amount of costs reasonably incurred by the applicant, in this case, the Council, in obtaining the liability order. In order to do so they need to have sufficient information as to how the figure was arrived at, and what “costs” it represents; and they need to have enough information on which they can be satisfied that the costs were incurred in obtaining the order and not, for example, in sending out council tax bills to all the taxpayers in the Borough.

54. It is a well-established public law principle that where a public authority has to make a decision, it must know (or be told) enough to ensure that nothing that it is necessary, because it is legally relevant, for it to know, is left out of account. That formula … applies with at least as much, if not greater, force in a context such as the present where the decision is not wholly a matter of discretion.”

In Bramwell v Valuation Office Agency [2015] EWHC 824 (Admin) Elisabeth Laing J held that it was the tenant of a flat who, although not in actual occupation, had the right to occupy, who was liable for council tax, rather than the landlord, notwithstanding that the tenant was out of occupation of the flat because of the need for substantial repair.  The scheme of s6 of LGFA 1992 was ECHR compliant.

The draft Council Tax and Non-Domestic Rating (Powers of Entry: Safeguards) (England) Order 2015 amends the statutory powers of entry contained in the Local Government Finance Act 1988 (“the 1988 Act”) and the Local Government Finance Act 1992 (“the 1992 Act”) to insert a requirement to obtain authorisation from the First-tier Tribunal prior to exercising the powers.  In addition, it makes amendments to the notice period in the 1988 Act and the fine level in the 1992 Act.

Section 42 of the Protection of Freedoms Act 2012 (“the 2012 Act”) imposes a duty on Cabinet Ministers to review powers of entry for which they are responsible within two years of the passing of that Act. This review is required to be undertaken with a view to Ministers deciding whether to make an Order under section 39(1), 40 or 41 of that Act repealing, rewriting or adding safeguards to those powers.  CLG conducted the required review of its powers of entry and published it on 27 November 2014. As part of the review, two powers were identified in relation to which it was proposed that safeguards be added under sections 40 and 41 of the 2012 Act. Those powers are contained in paragraph 7 of Schedule 9 to the 1988 Act and section 26 of the 1992 Act.

Paragraph 7 of Schedule 9 to the 1988 Act confers a power for a valuation officer of the Valuation Office Agency to enter on, survey and value a hereditament on giving 24 hours’ notice in writing for the purpose of valuing a property for non-domestic rating. A person wilfully delaying or obstructing an officer in the use of the power is liable on summary conviction to a fine not exceeding level 1 on the standard scale.

Section 26 of the 1992 Act contains a similar power in relation to domestic properties for the purpose of council tax banding. However, the required notice period in that case is 3 working days, and the fine for obstructing an officer in the exercise of the power is set at level 2 on the standard scale.

Paragraph 7 of Schedule 9 to the 1988 Act and Section 26 of the 1992 Act are being amended to provide for the following:

a. That where consent to enter is not given, the Valuation Office Agency’s Listing Officers and Valuation Officers will be required to seek the authority of the First-tier Tribunal to exercise their statutory entry power, under which the property’s occupier can be fined if successfully prosecuted for obstructing a Valuation Office Agency Officer in the exercise of the power.

b. That the fine level for council tax is reduced and is aligned with business rates to level 1 of the standard scale (currently £200).

c. That the written notice period sent by the Listing Officers and Valuation Officers in advance of a visit to council taxpayers and business ratepayers following First-tier Tribunal authorisation is three working days.

Ealing LBC, Kensington RLBC & Hammersmith and Fulham LBC v Notting Hill Housing Trust and A2 Dominion Housing Group Ltd [2015] EWHC 161 (Admin) were appeals by the three local authorities to the High Court from the President of the Valuation Tribunal.  The respondents were two registered providers of social housing with charitable status.  The appeals concerned the application of an exemption from council tax contained in the Council Tax (Exempt Dwellings) Order 1992, SI 1992/558, as amended: “a dwelling owned by a body established for charitable purposes only, which is unoccupied and has been so for a period of less than six months and was last occupied in furtherance of the objects of the charity”.  The exemption thus consists of four conditions or requirements, (1) the dwelling must be owned by the body in question, (2) the body must be established for charitable purposes only, (3) the dwelling must have been unoccupied for a period of less than six months, and (4) the last occupation must have been in furtherance of the objects of the charity.  Mostyn J held that the charity that seeks the exemption has the burden of establishing all four conditions for the grant of the exemption.

Vis-à-vis charitable social housing providers there is no presumption that conditions (2) and (4) are satisfied. There is no reversal of the normal burden of proof.  Mostyn J added (para 19):

“In my judgment a short written representation by the applicant (which might usefully be done on some kind of standard form) which addresses all four conditions directly and which states (a) that based on the material held by the applicant the conditions are met and (b) that the statement is true to the belief of the representor, should normally be enough.”

Mostyn J added (para 37):

“… the Secretary of State should consider promulgating a revision to the … exemption which provides for a presumption in relation to condition (iv) where the application is made by a charitable social housing provider.”

Pursuant to the Local Government Finance Act 2012 Sandwell Council adopted a Council Tax Reduction Scheme.  For working age council taxpayers this was restricted to those who have lived in the Council’s area for over 2 years: the residence requirement.  In R (Winder) v Sandwell MBC (2014) EWHC 2617 (Admin) Hickinbottom J upheld a judicial review challenge to the residence requirement.  The principal ground on which he did so was that it was unlawful as being ultra vires.  The Judge ruled that the residence requirement went beyond the criteria, referenced on financial need, by which, pursuant to the legislation, classes for council tax reduction can be defined. He said, at para 53, that the class must be defined by reference to financial need, albeit by reference to criteria which the authority considers identify those who are, in general, in financial need.  There is considerable discretion in the authority as to the criteria adopted to identify financial need, but, said the Judge, criteria which do not identify those who are at least more likely to be in financial need fall outside the powers granted to an authority by Parliament. 

Alternatively, para 58, the residence requirement was, the Judge held, the use of the statutory power, to relieve those in financial need from the full burden of council tax, for an unauthorized purpose, which the Judge found to be, to discourage people from areas of higher housing cost from moving to Sandwell.

The Liquidator of a tenant company has disclaimed the lease.  The property is unoccupied.  Who then is the “owner” of the property for the purposes of non-domestic rates? Answer: the landlord.  So ruled Hickinbottom J in Schroder v Birmingham City Council [2014] EWHC 2207 (Admin).  The disclaimer determined the lease.  It gave the landlord the right to immediate possession.  It was irrelevant that the Insolvency Act 1986 preserved the contractual liabilities of the guarantor.  Those did not mean that the guarantor had a right to immediate possession.

SC v East Riding of Yorkshire Council and CW v East Riding of Yorkshire Council, Valuation Tribunal, 27 May 2014, were the first relating to council tax discretionary relief under the Local Government Finance Act 1992 heard since the Local Government Finance Act 1992 had replaced council tax benefit with the requirement for each local billing authority to have a council tax reduction scheme.  They provided the opportunity to consider and define the nature and scope of such appeals.  At paragraph 5 of the decision the President of the Tribunal, Professor Graham Zellick QC, noted that (i) discretionary relief is applicable both to those who have been awarded a reduction under a council tax reduction scheme and those who have not, (ii) as schemes must stipulate a procedure for applying for a reduction, authorities must consider every such application on its merits, and (iii) whereas there must be a formal published scheme for council tax reduction, there is no requirement for a scheme governing discretionary relief, unless there has been a determination that a class of case is to be reduced in accordance with that determination.

At paragraph 16 the President stated that his own Practice Statement, Council Tax Reduction Appeals, was incorrect.  It is to be amended and reissued.

At paragraph 23, the President stated that the Tribunal’s approach is the same as in every other appeal.  He stated as follows (emphasis added):-

“24.    Thus, it is for the appellant to raise doubt as to the correctness of the authority’s decision and to argue what the correct decision should have been. The authority may then defend its decision and the panel will decide the appeal on the balance of probabilities. There is no inhibition on the Tribunal’s substituting its view for that of the authority, but any such substitution must be soundly and solidly based.

25.     The following points … are designed to assist billing authorities, council tax payers and Tribunal members and clerks in dealing with these appeals:

(1)        The focus of an appeal as opposed to a review is fundamentally different: full appeal reaches further and assesses the actual merits of the decision reached.

(2)        Some deference should, however, be paid to the view of the original decision-maker and an effort made to understand how that decision was arrived at, but that cannot prevent the Tribunal from substituting its view for that of the authority provided that the Tribunal can articulate cogently why it is doing so and how it has arrived at its conclusion.

(3)        The authority’s decision does not have to be unreasonable in the Wednesburysense before it can be set aside, but the Tribunal should intervene only where there are strong grounds for doing so.

(4)        It may not be an exact parallel, but the Court of Appeal will allow an appeal against sentence only where the sentence is wrong in principle. This suggests that some restraint should be exhibited by the Tribunal before disturbing a billing authority’s decision.

(5)        Procedural defects may recede in importance, or be completely effaced, since the Tribunal will be chiefly concerned with the actual merits of the decision. Earlier defects in process may therefore be cured or superseded by the appeal, and a decision may be adjudged correct despite defects in process.

(6)        Although a scheme or policy is not required by statute, it is difficult to see how such an open-ended discretion can be satisfactorily exercised in the absence of one.

(7)        Any such policy should be scrutinised by the authority’s lawyers before promulgation.

(8)        Compliance with a formal published policy or scheme, if there is one, cannot preclude the Tribunal from allowing an appeal.

(9)        Any such scheme is not immune from challenge in the Tribunal as, for example, is a council tax reduction scheme… . It is not the Tribunal’s business to impugn any scheme as such but rather that its own powers cannot be inhibited or circumscribed by a scheme.

(10)      Failure to comply with a substantive element of a scheme to the detriment of the applicant is likely to lead to the overturning of the decision unless there are good reasons for having departed from it.

(11)      However, compliance with a scheme or policy may help in persuading the Tribunal that the original decision was correct.

(12)      The Tribunal should be slow to interfere with a decision that properly flows from a determination made under section 13A(7).

(13)      An authority cannot as a matter of law fetter its discretion and must therefore consider every application on its merits whatever the policy or scheme says.

(14)      Suppose, for example, there is a provision that non-essential expenditure should be disregarded when calculating legitimate outgoings and determining disposable income. The Tribunal could conclude that the item was wrongly so characterised and should be included. Or that on its specific facts it should be included. Thus, mobile phones might normally be treated as a luxury but might become a necessity if the appellant is a carer who might need to be contacted urgently when not at home. Or a subscription to a satellite television service might have to be accepted if the appellant is locked into a contract that pre-dates his financial difficulties.

(15)      A factor which cannot have any relevance for the Tribunal is an overall budget created by the authority for the totality of discretionary applications in a given year so that any application will be considered in relation to the available budget and once that sum is exhausted no further applications can be granted. I do not see how in law this can be a cash-limited exercise. The merits of an appeal cannot be affected by the existence of any such budget. A “budget” is in any event a somewhat artificial concept in view of the fact that the authority is forgoing income and not spending existing funds.

(16)      Where the Tribunal is minded to allow the appeal and order a recalculation but is unsure of the actual amount to substitute, the appeal may either be adjourned for the parties to supply whatever further information is needed to reach a decision or it may conclude the appeal by quashing the calculation and ordering the authority to recalculate properly. The former is likely to be the better course in most cases.”

The Strasbourg Court has on 4 March 2014 given Judgment in the case of the Church of Jesus Christ of Latter-Day Saints v UK, Case 7552/09.  The Church alleged that the denial of the exemption from business rates, under the Local Government Finance Act 1988, reserved for buildings used for public religious worship, in respect of its Temple at Preston, Lancashire, gave rise to violations of its rights under Article 9 of the ECHR and Article 1 of Protocol No. 1, both taken alone and in conjunction with Article 14.

On 30 July 2008 the House of Lords had unanimously held, [2008] UKHL 56, that, as a matter of UK domestic law, a place of “public religious worship” must be one that is open to the general public. Four of the five Law Lords further dismissed the applicant’s arguments under the ECHR, holding that the liability to pay 20% business rates on the Temple did not fall within the ambit of Article 9, since Mormons were still free to manifest their religion and since the statutory requirement to be open to the public applied equally to all religious buildings and did not target Mormons in particular

The Strasbourg Court held, by a majority, that the complaint under Article 14 taken in conjunction with Article 9 was admissible. However, the Court held, unanimously, that there had been no violation.  There was no differential treatment.  Moreover, any prejudice caused to the Church was reasonably and objectively justified, and any interference was within the UK’s wide margin of appreciation with respect to the public interest and matters of general social strategy.

The conclusion was expressed at para 35 as follows:-

“In conclusion, insofar as any difference of treatment between religious groups in comparable situations can be said to have been established in relation to tax exemption of places of worship, such difference of treatment had a reasonable and objective justification. In particular, the contested measure pursued a legitimate aim in the public interest and there was a reasonable relationship of proportionality between that aim and the means used to achieve it. The domestic authorities cannot be considered as having exceeded the margin of appreciation available to them in this context, even having due regard to the duties incumbent on the State by virtue of Article 9 of the Convention in relation to its exercise of its regulatory powers in the sphere of religious freedom. It follows that the Court does not find that the applicant Church has suffered discrimination in breach of Article 14 of the Convention, taken in conjunction with Article 9.”