Policy paper

Digitalising Business Rates – Impact Note

Published 15 March 2023

Applies to England and Wales

Scope of the note

This note provides a preliminary assessment of the expected impact of the government’s plans to digitalise business rates (DBR) as set out in its response to the DBR consultation, which is published alongside this note.

Who is likely to be affected

People in England and Wales who are liable to pay business rates in respect of a particular unit of property, including units whose liability is usually covered by a relief.

General description of the measure

DBR will connect the business rates information held locally by billing authorities with HMRC tax data. This will help to modernise the business rates system and improve the data available to central and local government.

DBR will do this by placing a duty on ratepayers to provide to HMRC an up-to-date tax reference number. Ratepayers will provide this information using a new online service. In order to simplify the experience for ratepayers, this will be the same service through which ratepayers will provide information to the Valuation Office Agency (VOA) in order to meet the other new duty being introduced as part of the wider business rates reform package – for ratepayers to provide updates and confirmations to the VOA regarding changes relating to the rateable value of their property/ies.

HMRC will use the information provided via the service to match the ratepayer to their tax data.

Policy objective

The matching of a ratepayer’s property data to their tax data should provide central and local government with a more holistic view of businesses. The availability of new and richer data could facilitate the more targeted application of – and improved compliance with – business rates relief schemes. It could also contribute to a better understanding of where, across the country, economic activity is located. The government’s recent experience of designing and targeting COVID reliefs and grants made clear the value of better, more-joined-up information about local economic activity.

The data generated by DBR could also help HMRC with its tax compliance work.

Background to the measure

In reforms first outlined at Budget 2016, and re-affirmed in the Final Report of the Business Rates Review in October 2021, the government said that “modernisation and digitisation, as well as how data can be used to improve administration of relief where feasible, would be an effective way to support firms to navigate the business rates system”.

DBR represents a step towards this goal. A public consultation, which closed in September 2022, tested potential design options for the DBR system. The government’s response to that consultation is published alongside this note.

Detailed proposals

Operative date

DBR will require legislation to place a new duty on ratepayers to provide a tax reference number to HMRC. The government will legislate for DBR when parliamentary business allows. The new duty will only be brought into force when the new online service, enabling ratepayers to provide their reference number, is ready. The previously published roadmap gives an indicative date for launch of the new service of 2026 to 2027.

Proposed new measures

DBR will introduce a new statutory duty on ratepayers to provide a tax reference number to HMRC. HMRC will provide a list of acceptable reference numbers. HMRC will also have a power to exempt certain groups from the duty to provide a number and, following further consultation and design of the online service, may exercise this power to exempt any groups for whom providing one of the prescribed numbers would be considered too impractical, or impossible (such as the ‘digitally excluded’).

Generally, ratepayers will be asked to provide an up-to-date tax reference number to HMRC within 60 days of becoming liable to pay business rates in respect of a particular property, but the duty will be ‘soft launched’ at first, meaning ratepayers will be given more time to provide a number. A ratepayer may be liable to a penalty if they fail to provide a tax reference number, although HMRC’s preference will be to encourage compliance via other means rather than applying penalties.

DBR will also provide for a two-way exchange of information between HMRC and billing authorities. HMRC will be permitted to share with billing authorities certain (non-taxpayer-confidential) information gleaned from matching property data to tax data (for example, whether the ratepayer is claiming small business rates relief in multiple locations). Billing authorities may be asked to share information with HMRC relating, among other things, to the operation of relief schemes.

Billing authorities will remain responsible for issuing bills to properties, making decisions on awarding reliefs and collecting any payments due. HMRC will not take on any legal responsibilities to issue demand notices or collect payment of non-domestic rates.

Summary of impacts

Impact on business, including civil society organisations

DBR will have an impact on businesses and organisations which are liable to pay business rates in respect of a particular unit of property. The impacts on ratepayers are detailed below.

Impact on individuals, households and families

There will be limited impact on individuals, since DBR will only affect ratepayers. There will be an impact on individuals who are liable to pay business rates in respect of a particular unit of property. The impact on ratepayers is detailed below.

Impact on ratepayers ^{[footnote 1]}

Approximately 1.4 million ratepayers in England and Wales will be affected by this measure.

Ratepayers will be able to comply with the duty to provide a tax reference number in respect of a particular property by using an online service. It is expected that this will be the same online service through which ratepayers will also be asked to complete the new VOA duty. This will minimise the administrative burden on ratepayers. The system will be soft launched to ensure stakeholder feedback is reflected.

The cost of complying with the duty to provide a tax reference number is expected to be very low. On current estimates, it is expected to be around £2 for most businesses, and no more than £6 in those cases where finding a suitable tax reference number takes longer. ^{[footnote 2]} It is not expected that there will be any ongoing costs once a business has provided a tax reference number, except in infrequent instances where that tax reference number might need to be updated (in which case, it is expected the further cost would be similar to the initial cost). ^{[footnote 3]}

There may be a (to-be-quantified) benefit to some ratepayers from any improved application of business rates relief which results from the improved data DBR generates.

Impact on billing authorities

The 331 billing authorities in England and Wales with responsibility for business rates billing will be affected by DBR. Billing authorities may need to adjust some hardware and software for DBR. HMRC is working closely with billing authorities on what will be required, and new burdens funding will be provided to address any additional costs imposed on billing authorities by DBR. Any such costs are yet to be quantified.

Equalities impact

It is not expected that these proposals will have a disproportionate impact on people directly due to their protected characteristics. However, provision will be made for the ‘digitally excluded’. While this is not itself a protected characteristic, it can correlate with some protected characteristics (such as age, disability, religious belief). When designing the online service, HMRC will take account of the needs of the digitally excluded and determine any reasonable adjustments which can be made to the policy and/or the service to address those needs. Similarly, the service will be designed to be accessible by those with any additional needs, such as the visually impaired.

Operational impact

Once these proposals have entered into force, HMRC may incur a small ongoing operational cost from administering the service and its associated penalties regime for non-compliance. The exact costs have not yet been quantified.

Monitoring and evaluation

These proposals are supported by an evaluation plan and will be monitored at review points throughout the ‘soft launch’.

Further advice

If you have any questions about this change, contact HMRC: dbrconsultation@hmrc.gov.uk.

1. This impact assessment is based on currently available information. Where data is not available, reasonable assumptions have been made. Actual costs will depend on individual circumstances. ↩

2. These figures are based on the estimated time it will take ratepayers to find and input their tax reference number to the online service. They do not account for the estimated time it will take users to register with the service or to use it for any other purpose (eg. to discharge their duty to provide information to the VOA). A separate impact note has been published in respect of the VOA duty, which accounts for those costs. ↩

3. HMRC expects that in most cases a tax reference number will be updated automatically, meaning the ratepayer need take no further action themselves (and would therefore incur no cost). The small number of instances in which this might not be possible, and in which ratepayers might be asked to take action manually, have not yet been quantified. HMRC will in due course provide clear guidance to ratepayers on when they might need to take action. ↩