An arts organisation that helped property owners avoid at least half a million pounds in tax by organising exhibitions in vacant buildings has been labelled a “sham” at the High Court.
Preservation and Promotion of the Arts, a private limited company that describes itself as a charity, enabled owners of office blocks and business parks to avoid paying business rates on empty buildings by hosting pop-up events.
Full business rates are due on commercial properties that remain unoccupied after three months, but if they are used by charities they are entitled to at least an 80 per cent discount.
Local authorities took legal action in Birmingham regarding three buildings comprising 25 units in total, and in Bolton in relation to 11 properties.
At least one more council is reviewing claims by PAPOA.
Last month, High Court judge Mrs Justice Jefford heard an appeal by the charity against previous rulings that ordered PAPOA to pay more than £123,000 in the Bolton ruling, and more than £371,000 in Birmingham.
Part of PAPOA’s appeal argued that the district judge had made no attempt to apply the case law to the facts, but this was dismissed by Jefford and two previous rulings were upheld.
In the Birmingham case, District Judge Jellema had previously said: “I had heard no evidence that would properly serve to contradict the assertion of one of [Birmingham's witnesses] that [PAPOA] is a shell or a sham set up specifically to avoid the payment of non-domestic rates properly due in relation to the hereditaments in question.”
Brigid Jones, the deputy leader of Birmingham City Council, said it brought the action on behalf of the city’s inhabitants and legitimate charities.
“To dodge your business rates in this way is to take money away from the people of Birmingham.
“Charitable relief is there for a reason, and it’s not OK to abuse it to deprive local authorities of much-needed income.”
Chesterfield Borough Council confirmed that the charity hosted a one-day event in part of Markham House in Chesterfield, Derbyshire, last November.
“We are aware of the legal action taken by other local authorities, and are reviewing the company’s position in relation to business rates in Chesterfield,” said a council spokesperson.
The Charity Commission said PAPOA was not a registered charity and had not applied to for charitable status. As such, it would be assessing information to determine whether the company falls within its regulatory remit.
A spokesperson for the regulator said: “Any misuse of charities for private gain is unacceptable and undermines the special status that charity holds in the public mind.
"To protect their charity from this type of misuse, trustees should guard their charity’s independence fiercely and be assured that any tenancy agreement they enter into is for the exclusive benefit of their charity and will further their charity’s purposes and is in its best interests.”
The regulator said it took robust action against such issues.
The charity said it was aware of the High Court judgment, and surprised by the result given that it has been successful in other cases on the same issues.
"No order has yet been made in respect of that judgment and a hearing to establish what order should be made has not yet been arranged by the court. We are lodging an appeal with the Court of Appeal. It would be inappropriate to comment further at this time whilst the matter is proceeding to the Court of Appeal," said the charity.
A survey by the Local Government Association last year found that business rates-avoidance schemes were costing the government an estimated £250m.