Key facts
- A UK court of appeal has ruled against a tax avoidance scheme known as "box shifting" used on empty commercial properties.
- The scheme allowed companies to avoid business rates for nearly two decades, costing local authorities an estimated £1bn.
- The ruling stated that occupying a property solely for rate saving does not constitute beneficial occupation.
- The City of London Corporation, which brought the case, welcomed the decision as a victory for local authorities.
- New regulations require properties to be occupied for 13 weeks to qualify for rate holidays, making such schemes less attractive.
A landmark court of appeal ruling has effectively ended a nearly two-decade-old tax avoidance scheme that allowed companies to avoid paying business rates on unoccupied commercial properties in the UK. The practice, often referred to as "box shifting," involved strategically placing nondescript boxes in empty office spaces to reset the clock on three-month rate holidays, thereby significantly reducing or eliminating business rates.
The scheme, which has cost local authorities an estimated £1bn, was brought to a head by a case initiated by the City of London Corporation against two companies: 48th Street Holdings Ltd, a leaseholder of a London office building, and Principled Offsite Logistics Ltd (POLL), a prominent provider of rate mitigation services.
Historically, companies could claim a three-month rate holiday at the end of each tenancy. The "box shifting" scheme exploited this by moving boxes into vacant properties for short periods, then removing them to re-qualify for another holiday. This cycle could reduce rates owed by up to 67% until a long-term tenant was found. One London council alone was reportedly losing £35m annually since the pandemic due to a doubling of such claims.
While lower courts had previously upheld the legality of the scheme, deeming the motive of rates avoidance irrelevant, the court of appeal overturned these decisions. Lady Justice Falk ruled that "occupation" for the sole purpose of saving rates, without any other use, value, or benefit, does not constitute occupation under the statutory scheme.
The City of London Corporation welcomed the ruling as a significant victory, stating it closes a widely used tax avoidance scheme and safeguards revenues for essential public services. A government spokesperson acknowledged concerns about the misuse of Empty Property Relief and indicated that action is being taken to ensure businesses pay owed taxes.
POLL, which claimed to have saved clients £500m in rates by 2021, is now facing the consequences. Its application for permission to appeal to the supreme court was refused by the court of appeal. The company's website has been suspended, and its founder, Steven Dawson, died in 2024. POLL was acquired by two executives, including Labour councillor Sarah Lucas, who co-owns the company and sits on a finance committee for North Hertfordshire council.
Changes to the rules in 2024 now require buildings to be occupied for 13 weeks, rather than six, for the three-month holiday to apply, making such schemes less attractive, though variants may still be effective. Other rate mitigation schemes involving items like Bluetooth boxes, charitable exhibitions, snail farms, or faith rooms are also in use.