Councils writing off millions in unpaid business rates

Millions of pounds in unpaid business rates are being written off by councils due to a loophole in licensing and business laws being exploited.

The Local Government Association (LGA) is calling for new powers to allow town halls to suspend the licences of businesses which wilfully or persistently fail to pay their business rates, with licences only then being reinstated when the debt has started to be paid off.

Under current licensing laws, councils cannot refuse or suspend a premises licence for outstanding business rate debts. This means that some councils face business rate debts of nearly £1.5 million, while others have been forced to write off unrecoverable sums of around £300,000 owed by licensed premises including pubs, clubs and off-licences.

The LGA reports that Newcastle City Council is facing £1.47 million in business rate debts accrued by licensed premises, accumulated over several years, while West Suffolk has had to write off almost £300,000 in business rates owed by licensed premises, with one nightclub alone owing £97,000.

Much of the current problem is exacerbated by the introduction of ‘phoenix companies’ - the act of a company going bankrupt, only for a second company to start up overnight with the same directors, but without any obligation to pay their old company's debts.

Council leaders believe that new licensing powers would help councils manage business rates more effectively when this is devolved to local government by 2020.

Cllr Simon Blackburn, the LGA's Licensing spokesman, said: “Councils are powerless to stop vast sums of unrecoverable money from building up or take action if a business closes and reopens under a different name.

"The government should close the phoenix company loophole by making it a legal requirement for directors of bankrupt companies who start up a new business to pay their old company's business rate debts.

"Giving council powers to refuse or suspend a premises licence at an earlier stage of the debt recovery process would be a simple way to tackle this problem and protect local services."