Sham schemes: the risks for commercial landlords evading business rates.
A commercial landlord’s tax avoidance plans have slithered to a slow crawl after their attempt to secure a business rates exemption through a sham ‘snail farm’ scheme was exposed. The local council has condemned the bogus operation as an empty shell, designed to dodge taxes, leaving the property owner stuck with the full business rates bill.
As councils ramp up their efforts to combat business rates avoidance, and courts consistently rule against avoidance tactics, commercial landlords are being urged to operate within the bounds of the law and take professional advice before committing to any scheme claiming exemption.
The latest incident centred on a company that offers a route to minimise business rates on empty commercial property. Under the company name ‘Snai1 Primary Products’ they took a lease on a property in Liverpool with the proposed intention of running a snail farm, on the agreement of the property owner. Properties used for agricultural purposes can be exempt from business rates, but the local authority has called the lease agreement a “sham scheme” intended to exploit the agricultural exemption. Liverpool City Council has condemned the setup as a tax avoidance ploy to avoid paying £61,000 in business rates for the building, reminding landlords that such schemes can backfire, leading to legal challenges and potential financial penalties.
Simon Wilson is a commercial property lawyer here at Wollens and explains “This was not an isolated case. The company that took the lease and set up the snail farm operates under various aliases and the director has been linked to similar operations across the country.
“In a previous case in Leeds, the High Court ruled that a similar operation and lease agreement had been designed purely to dodge business rates. Despite these previous rulings, companies such as this continue to claim their operations are legitimate routes to rates exemption and commercial property owners need to be aware.”
In the Leeds case, the court emphasised that there was no genuine intent for the properties to be used for snail farming and found that both parties did not intend to comply with the supposed terms of the lease. The court highlighted how this was evidenced by the mismatch of the office space properties with the claim for agricultural use, together with the lack of meaningful occupation by the supposed tenants.
The warning is that the sham schemes such as the snail farm could result in property owners shelling out more, rather than less.
Simon Wilson said: “Owners entering into these agreements usually pay a cut of the saving to the sham operation. But if the operation is declared bogus, they will then have to pay the full sum of business rates, together with penalties, legal fees and reputational damage. Commercial landlords should be wary of any arrangement that promises to reduce tax liabilities through dubious means and always check out the legal small print before agreeing.”
“The lesson is to recognise that there will be swift action if this sort of sham operation is discovered,” added Simon. “The agricultural exemption for business rates exists for legitimate farming activities, not as a loophole for landlords seeking to avoid their financial responsibilities.”
Isle Investments Ltd v Leeds City Council (Rev 1) [2021] EWHC 345 (Admin) (19 February 2021)
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Our team in both of our Commercial Property and our Dispute Resolution departments in each of our offices in South Devon, Exeter and North Devon can advise on all aspects of commercial property law.
For further information, please contact Simon Wilson, Consultant in the commercial property team on 01803 396604 or email [email protected]
Simon Wilson, Consultant, Commercial Property
