Companies forced to demolish storage to save on tax

Posted on 28 Oct 2008 by The Manufacturer

The United Kingdom Warehousing Association (UKWA) – the trade association for the third party logistics sector – says that there is growing evidence that the Government’s recent move to scrap rate relief on empty industrial property is having a serious impact on the warehousing industry.

“From the feedback we are getting our members are clearly concerned about the effect that the new ratings regime is having or will have on their businesses,” comments UKWA chief executive officer Roger Williams.

One UKWA member, East Coast Storage, has told the Association that, to avoid paying the tax, it has gone so far as to demolish an empty storage unit at its site in Kings Lynn.

The company’s general manager, Kevin Bristow, explains: “We demolished the building so that our local council had to delete it from the rating list. I will continue to liquidate our building stock due to government’s erroneous new business rating regulations. In fact it looks likely that I will knock down a second unit once the current tenant vacates. We also have planning permission to develop 26,000 sq ft of warehousing but this has been shelved for the foreseeable future.”

The Potter Group, which operates some 1.6 million square feet of covered warehousing at five sites throughout the UK, recently demolished an empty warehouse to save on rates. And, like East Coast Storage, The Potter Group has also been forced to rethink plans to build a new store since the change in the rating system, as Jim Thomson, the company’s operations director, explains: “We have invested money and considerable management time and effort in obtaining planning permission at two of our sites for either new warehouses or warehouse extensions but both of these are, to a degree, speculative and the potential for incurring empty property rate relief is contributing to us delaying a decision to commence the building work. This decision will clearly slow down the creation of new jobs.”

UKWA’s Roger Williams comments: “Industrial property owners such as East Coast Storage and The Potter Group are being tempted to demolish empty property as a way of avoiding paying the substantial amounts of tax that unoccupied sites now incur following changes to the Empty Property Rate Rules. It is, quite frankly, an absurd situation.

“The fact that this new legislation not only encourages the early demolition of older empty warehouse buildings but also discourages the construction of new speculative warehouses, means that when the market recovers there will be a shortage of available warehouse space and that will result in higher rents.”

The Empty Property Rate Rules came into effect on 1st April this year and changed the tax position of empty warehouses substantially. Empty warehouses are now liable – after a six month holiday – for empty property rates at the same rate as they would pay if they were occupied.

UKWA estimates that on a typical empty 10,000 square metre warehouse, the potential rates bill could reach £1/4m each year.

UKWA is gathering evidence of how the new tax is effecting the sector before lobbying parliament on the issue.

Roger Williams concludes: “No logical warehouse keeper keeps a building empty. He will always seek to find a client to fill the site with pallets. However, if the market has moved against him, requiring him to pay rates is an additional hardship that, in the current climate, this industry could do without.”