Barclay review challenges rates relief for some charities

University in Scotland
Victoria Simpson By Victoria Simpson, Head of Charities at law firm Anderson Strathern and member of the ICAS Charities Panel

11 October 2017

There has been a mixed response to the publication of the Barclay Review, a major review of non-domestic rates (also known as business rates), commissioned by the Scottish Government.

This briefing considers the key recommendations arising from the Review and their potential impact on a range of bodies from independent schools, universities, sports clubs and local authority arm’s length external organisations.

Anderson Strathern can assist registered charities and other bodies assess the potential impact of the Barclay Review on their business model.


A review of business rates in Scotland was long anticipated with the Barclay Review finally being commissioned by the Scottish Government in 2016:

“To make recommendations that seek to enhance and reform the non-domestic rates system in Scotland to support business growth and long-term investment and reflect changing marketplaces"

... while remaining revenue neutral.  

The resulting Review Report contains 30 far-reaching recommendations for reforming business rates in Scotland, which have had a mixed reception.

There are several controversial recommendations which could be financially disadvantageous for Scotland’s independent schools, universities and arm’s length external organisations, registered charities created by local authorities to deliver public services: these bodies are also known as ‘ALEOS’.  

Current position

At present, a registered charity which occupies property used in accordance with its charitable purposes will qualify for mandatory rates relief at 80% of the charge, largely funded by the Scottish Government. Each local council has the discretion to increase this relief to 100% should they so wish.  Community amateur sports clubs (CASCs) and other sporting facilities also receive mandatory relief at 80%.


ALEOS provide a range of facilities which are available to the public, from the provision of sports facilities, leisure centres, community centres, to libraries and museums etc.  The Barclay Report draws the following conclusions about ALEOS:

  • Councils have created ALEOS to take advantage of the rates relief position.  As the cost of the rates relief is largely met by the Scottish Government, this allows each council to gain additional funding from the Scottish Government as well as their allocated funding.  The Report considers this to be tax avoidance which should cease.  If a council was still providing the services directly rather than through an ALEO, it would be required to pay rates.
  • Some councils have a greater number of ALEOS than others.  This means that some councils are liable to pay what can be a significantly higher rates bill than other councils, creating an unfair distinction between councils.
  • ALEOS create unfair competition between the public and the private sector.  It gives the example of rate paying private gyms and leisure facilities that are competing with equivalent ALEO facilities receiving rates relief.  The Report also states that some ALEO facilities offer cafes, retail outlets, venue hire etc which gives the ALEO an unfair advantage when compared to private sector businesses that offer the same or a similar service.
  • ALEOS should not be eligible for Sports Club relief if rates relief is removed.  Sports Club relief is considered below.

The Report recognises that these far-reaching changes can only be fully implemented with primary legislation.  In the meantime, it suggests that the Scottish Government could cut each council's budget by the amount of rates relief claimed to achieve an immediate saving.  It recommends that these changes apply from 1 April 2018.

Independent schools

The Report notes that state schools do not qualify for rates relief and therefore pay rates, whereas independent schools which are charities receive rates relief.  The Report considers this to be unfair and unequal.  As a result, it recommends that rates relief for independent schools should be removed.  

The loss of rates relief should be manageable for most independent schools resulting in a small increase in expenditure for the larger schools, but smaller schools may find it more challenging. The increase is likely to be passed on through an increase in school fees.  We would anticipate that the earliest any rates change may occur is 2020 to allow for possible transition phasing, which will give independent schools more time to prepare.

The response of the independent school sector will be interesting, but in the longer term we do see an opportunity for the independent school sector to negotiate significant change which may ultimately include an ability to cease having charitable status altogether should this be desirable, in a way that would allow assets to be controlled by the institution without the Scottish Charity Regulator, OSCR’s, involvement as is the present situation.

We also consider that the legal issues surrounding state aid, human rights and potential consequences for the Scottish educational system of qualifications are all factors which may suggest that there is good reason for the Scottish Government to be willing to sit down and discuss implementation of the Report with the independent schools’ sector.


Universities are recognised charities which qualify for rates relief.  The Report recommends that:

  • The core functions of universities, which include education, research and development should continue to be eligible for charitable relief.  This reflects the key role that universities play in supporting economic growth by educating the workforce and supporting innovation.
  • In the interests of fairness and equality, the commercial elements of the university should not be liable for rates relief where they compete with the private sector.  It considers the example of university residential properties, such as halls of residence and self-catering flats.   The Report agrees that universities should receive rates relief when occupied by students during term time, but when let on a commercial basis outside of term times, they are operating in direct competition with local hotels and hospitality businesses and should therefore pay rates.  This would also apply to commercial activities which include hiring out venues for non-university conferences and other functions.  It suggests that rates relief is apportioned in for multi-use university owned properties which carry out both forms of activity.  How this would operate in practice remains to be seen.

Sports Club Relief

The Report supports a review of the tax position of sporting facilities in Scotland.  This is to ensure that rates relief is only provided to local community based sports facilities, rather than to members’ clubs which can hold significant assets.  It states that members’ clubs should not be entitled to rates relief and that this is an unintended consequence of the current legislation.  The Report gives as an example two prestigious private members’ golf clubs in Scotland which receive substantial rates relief, one of which is owned by Donald Trump.  

The Report suggests that the Scottish Government should review the recipients of this relief and consider reforming the relief, possibly by merging it with the Small Business Bonus Scheme.  This is to ensure that local community sporting facilities remain fully supported with rates relief.

Aims of the Barclay Report recommendations

The Barclay Report tackles only non-domestic rates and does not seek to challenge the charitable status of ALEOS, independent schools and universities.  In making these changes, it claims to seek to reduce scope for tax avoidance, inequality and unfairness and create what the report refers to as “a more level playing field”.  

It estimates that carrying out the proposed reforms of business rates relief available to registered charities will reduce the relief by at least £50 million per year, of which approximately £45 million will come from ALEOS, and around £5 million from independent schools.  Similarly, proposed reforms to Sports Club relief are expected to reduce the availability of business rates relief to recipients by around £3 million per year.


While the report recommendations will understandably be a cause for concern to charities and other organisations which could be affected, we would strongly emphasise that at this stage, the Scottish Government has not formally responded to the Report recommendations or set out its own plans for reform.  

Ultimately, it will be up to the Scottish Government to decide whether to implement some or all of these recommendations, and if so, how to introduce them.  Also, the Scottish Government could choose to implement any reforms using a phased approach over a number of years

In the meantime, the governing bodies of those charities which may be affected by the recommendations should consider their potential impact on the business model of their charity and take this opportunity to review their business plans, financial strategy and financial forecasts in light of the Barclay Report’s proposals.  This will form part of the good governance of the charity and the effective management and mitigation of risk.  

For further advice and insight on the effect of the Barclay Review, please contact Victoria Simpson, Head of Charities at Anderson Strathern by email on or by telephone on 0131 625 8162.

The views expressed in this briefing are the views of the author and not necessarily the views of the ICAS Charities Panel.


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