Local authorities are trying to charge charity shops full business rates if they are registered to a trading subsidiary, an expert has said.
Charity shops receive mandatory 80 per cent business rates relief and can be offered the remaining 20 per cent relief at their local authority’s discretion.
In recent years, fewer charity shops have been awarded the extra 20 per cent as local authorities’ finances have been squeezed and umbrella body the Charity Retail Association estimates that only one in seven now receives the full relief.
But, speaking at the Annual Tax Conference on Tuesday, CRA chief executive Robin Osterley said some local authorities had started challenging his members’ right to the mandatory 80 per cent rate relief if the shop is registered through a trading subsidiary.
Many charity shops are registered under charities' trading subsidiaries in order to gain other tax benefits.
Osterley said while his members had so far successfully argued their case, if mandatory rate relief were to stop being offered, about half the charity shops in the country would close.
He said: “It is completely crazy that the ownership structure of a charity shop should in some way mitigate against them getting rate relief just because they happen to own a tax efficient system called a trading subsidiary.”
Osterley said he was also concerned that the Charity Commission might make it harder for charities to run trading subsidiaries in its current consultation on connected companies.
He said if this were to happen, “many of our shops will have to revert to charity ownership, which will cause some issues down the other end in terms of taxation and VAT”.
Full time negotiator
Osterley said one of the country’s largest charity shop chains had employed a full time member of staff to negotiate the discretionary 20 per cent business rates relief with different local authorities across the country.
He said this was evidence that the discretionary relief system was inconsistent and anti-democratic as a lot of smaller charity shop chains could not afford to employ such a person to negotiate.
Osterley said: “It would be much more sensible to have 100 per cent rate relief across the board. It would be much easier to administer. It would be more logical. It would be much fairer for the charities. It would be more transparent. Everyone would understand what is going on.”