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Business rates loopholes 'costing councils millions'

Councils are being forced to write off millions of pounds in unpaid business rates because of loopholes in licensing and business laws, the Local Government Association has claimed.

It said some councils have been forced to write of unrecoverable sums of over £300,000 owed by licensed premises such as pubs, clubs and off licences, while one authority - Newcastle City Council - has a business rates debt of £1.47m.

Under current licensing laws, councils cannot refuse or suspend a premises' licence for outstanding business rates.

The LGA the problem is being exacerbated by the legal practice of companies going bankrupt, only for a so-called "phoenix company" to start-up overnight with the same directors but no obligation to pay the old company's debts.

The LGA is calling for new powers to allow town halls to suspend licences of businesses that wilfully or persistently fail to pay business rates. Licences would only be reinstated once the debt has been paid.

It is also wants an urgent change in the law to create a legal requirement for directors of bankrupt companies who start up a new business to pay their old company's business rates debts.

"Councils know that it is a tough business environment out there and are willing to work with businesses struggling to pay their way, but some businesses, including council-licensed pubs, clubs and off-licences are deliberately avoiding paying their rates, knowing they can continue to operate without fear of being stripped of their licence," said LGA licensing spokesman Cllr Simon Blackburn.

"Councils are already struggling to fund vital services amid funding pressures and business rates debt means they are being deprived of large sums of money to be spent on key services, such as roads, schools and caring for the elderly, as well as supporting local business economies.

"It must be particularly galling for law-abiding businesses who pay their rates on time but see competitors go bankrupt owing hundreds of thousands of pounds, only to legally reopen under the same directors scot-free.

"This is clearly unacceptable but 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."

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