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Business Rates for Agricultural Property

As central government spending cuts bite deeper, local authorities are seeking to increase receipts from business rates. Harry Baines of Brown & Co’s Melton Mowbray office assesses how rural businesses might be affected and the implications. 

Farmers and landowners whose buildings qualify for agricultural exemption from business rates are likely to face tighter scrutiny from local authorities who need to find additional revenue to help make up for reduced central government funds.

To help assess the threat to any particular business, it is worth reminding ourselves of what the law says about exemptions for agricultural buildings.

This was set out in the Local Government Act (2003) past 5 (non-domestic rates), section 67. It states that a building is an agricultural building if it is occupied together with agricultural land and is used solely in connection with agricultural operations on that or other agricultural land, or… the members who are occupiers of the land together have control of the body (for further detail see below).

The key points are the inclusion of the word land and the phrase control of the body. To be reasonably sure of qualifying for exemption, the use of the buildings must relate directly to adjoining farmland or at least other farmland.

The phrase “together with” is also important. The legislation does not specify distance between buildings and land but a defence is likely to be stronger if that distance is not too great. Non-agricultural use, such as agriplastics recycling or storage of non-agricultural materials, will potentially result in loss of the exemption, including operations run by the agricultural user.

Even if the local authority successfully argues that there is non-agricultural use and rates are chargeable, it is important to remember that there may be scope to minimise the damage. This may be by ensuring a smaller area of the yard/buildings is used for non-agricultural use and also arguing that the rental value (approximately equivalent to the rateable value) is low. Rates are charged by using a multiplier, typically around 50p per pound of rateable (rental) value.

We at Brown & Co would warn that a potential pitfall may lie in the detail of legal ownership versus legal occupation. What does this mean? It is not unusual for the freehold owners of the property to be different to those occupying.

A typical example may be a family farm owned by mother and father, but farmed by a partnership involving mother, father and son/daughter. If that business is split between in-hand farming and contract farming, or there is a particular machine which is solely used for contracting activities, there may be potential for the local authority to argue that the contracting activities are separate to the farming of the land. Another point to watch out for is a tenancy or lease (written or unwritten), either inter family/business or a third party.

Under the Statute of Limitations, the local authority have the ability to retrospectively charge for six years’ worth of rates and therefore it makes sense to review current arrangements and what has gone on in the past.

On Brown & Co’s current experience, the majority of farmer/contractors carrying out agricultural operations only should have nothing to fear but it may be worthwhile checking with a suitably qualified advisor.

Part 5, section 67 of the Local Government Act 2003
Exemptions for agricultural buildings

 

(1)    Schedule 5 to the 1988 Act (exemptions from non-domestic rating) is amended as follows:-

 (2)    For paragraph 3(a) (which provides that a building is an agricultural building if it is occupied together with agricultural land and used solely in connection with agricultural operations on the land) there is substituted-

“(a) it is occupied together with agricultural land and is used solely in connection with agricultural operations on that or other agricultural land, or”

 (3)    After paragraph 7(1)(b) there is inserted”, and

(c) The members who are occupiers of the land together have control of the body.”

 (4)    For paragraph 7(3) there is substituted-

“(3) This sub-paragraph applies if-

(a)     The building in question is occupied by a body corporate any of whose members are, or are together with the body, the occupiers of the building or buildings mentioned in sub-paragraph (2)(a) above, and

 (b)     The members who are occupiers of the land together have control of the body.”

 (5)     After paragraph 7(8) there is inserted-

“(9) In this paragraph “control” shall be construed in accordance with section 416(2) to (6) of the Income and Corporation Taxes Act 1988.”