The Barclay Review of Non-Domestic Rates provides a single and wide-ranging examination of non-domestic rates in Scotland. It covers a number of areas and makes some thirty recommendations. There are important issues for charities to be aware of and monitor as the recommendations are digested, considered by Scottish Government and others and any implementing steps then taken.

The Review report is over 100 pages but is written in a clear format making it very readable. Nevertheless, we thought it might be helpful to produce a blog looking at some of the key elements of the report as they affect charities and the third sector.

Overarching - "revenue neutral remit"

The foreword to the Review report says "under my revenue neutral remit, this all, of course has to be funded and I set out a number of measures to do so. These revenue raising measures may not be popular with some. They are not about penalising particular sectors. They are about removing anamolies, creating a level playing field and reducing avoidance."

Don't just read the recommendation on charities

Charities will also wish to read recommendation 23. It provides a reminder that their non-charitable trading arms and subsidiaries are not statutorily entitled to rates relief. There might be reasons why they should be awarded discretionary relief but there is no entitlement.

This part of recommendation 23 should also encourage charities to review trading activities and consider whether they need a trading subsidiary. In some cases, with an appropriately drafted set of purposes in the parent charity, there would no charity or tax law barrier to undertaking commercial activities through the charity itself.

"Charity relief should be reformed/restricted for a small number of recipients"

This is recommendation 24. What does it say?

At the outset there is a recognition of the annual quantum of charity relief. This is something we have blogged on before in 2015. The Review also notes that the quantum has increased in recent years and while no clear overarching reason is specified, the trend of local authorities setting up charities is noted as a factor (page 9 of and appendix 1 to the OSCR report noted below provides a list of such charities by local authority but not date of creation) as is "[rates] avoidance tactics".

The Review concludes that it is unfair and inequitable that independent (private) schools that are charities benefit from reduced or nil rates. The recommendation is that charity relief should be abolished for such schools. The estimated worth of relief in this segment is £5m.

Another focus area in this recommendation is ALEOs - "arms-length external organisations". ALEOs are organisations which tend to have some form of local authority control or influence. In a number of situations ALEOs are charities. OSCR has previously reviewed this group of charities. The OSCR 2015 report is worthwhile and interesting reading and amongst other things concluded that the ALEOs operated with sufficient independence and it was only in exceptional circumstances that a local authority had exercised control powers. For some comment on the OSCR report, here is a piece I was asked to write for Third Sector.

The Review describes the rates relief treatment of an ALEO undertaking a service as compared to the local authority itself and notes that "this allows councils to gain additional funding from Scottish Government outwith the usual funding arrangements, a fact that was acknowledged by councils themselves as one of the primary reasons they put services into ALEO status in the first place. This is tax avoidance and should cease".

The notion of a 'level playing field' is used in the report. It is applied in the context of ALEOs that offer gym and leisure facilities - an ALEO with reduced or nil rates compared to a private provider paying full rates. The report also mentions other services an ALEO might provide such cafes, retail outlets and venues. The Review argues that there should be a 'level playing field' and a stop to "abuse". The 'level playing field' concept is also attached to university residential lets outwith term-time. The same principle should also apply to other university commercial activities (the Review makes particular reference to venue and conference hire) and the relief on the buildings in question should be adjusted on a proportionate temporal basis.The core education and research activities of universities should continue to benefit from rates relief.


Recommendation 27 says that local community based sports facilities should be the real focus of rates relief here. The report recorded the Review group's surprise at "prestigious golf clubs" receiving significant relief. The introductory heading to recommendation 27 states that the support provided by relief should not be for "members clubs with significant assets which do not require relief".

The Review also encourages a wider reassessment of tax and sports facilities. We have talked about such things before (here and here) and there is quite a patchwork of legal and tax topics applicable to sport.

'Charity shops'

It has been reported that those representing charity retailers have welcomed the report as there are no recommendations to alter the rates position of such outlets. TheCharity Retail Association, told Third Force News: "We are of course pleased that the Barclay Review has acknowledged the huge importance of the charity retail sector by recommending no change in its rate relief regime".

Implementation and charitable status

The Review acknowledges the need for primary legislation to implement in full the charity relief recommendations. This in itself could be a positive as the current provisions (which have been amended from their original form) are unlikely to be described as elegant and user friendly.

Beyond the changes requiring primary legislation, the Review suggests available administrative functions where appropriate be utilised ahead of legislative updates. These would apply to ALEOs and the Review recommends these arrangements should be put in place as of 1 April 2018 with an estimated scaling back of their charity relief to the tune of £45m.

While some changes would necessitate primary legislation and parliamentary scrutiny, the Review seeks to stress the matter of status as a Scottish registered charity (per the Charities and Trustee Investment (Scotland) Act 2005) is outwith the scope of the Review.