What changes are being made to the payment process of schools’ business rates?

National non-domestic rates, more commonly known as business rates, are a tax charged on the occupation of most non-domestic properties, including schools

Schools’ business rates costs are currently funded through the National Funding Formula (NFF), which the government uses to calculate core funding allocations to mainstream, state-funded schools in England. From 10 March 2021 to 5 May 2021, the Department for Education (DfE) consulted on a proposal to centralise the payment of business rates for state-funded schools from 2022/23 onwards.

Essentially, this will involve the Education and Skills Funding Agency (ESFA) paying billing authorities directly on behalf of state-funded schools from April 2022. This will replace the existing system in which schools, typically, receive funding in respect of their rates bill in their annual budgets, via the NFF, and pay their business rates to billing authorities themselves. This change will reduce administrative burdens for schools and simplify the existing process. The government has already confirmed that it will go ahead with the proposals to centralise the business rates payment system for schools from April 2022 alongside the publication of the schools notional NFF allocations for 2022/23 in July 2021.

About the consultation

The consultation included two proposals to support the centralisation of business rates; the first was for ESFA to pay schools’ business rates directly to billing authorities on behalf of schools in June each year, and the second was for ESFA to make a single reconciliation payment to billing authorities in March each year to allow for adjustments before the end of the financial year. The DfE sought views from schools, local authorities and other interested individuals and organisations on whether the proposals were preferable to the current rates payment process and whether they were workable. They also asked respondents if they anticipated any new burdens as a result of centralising schools’ rates payments, or whether the proposals would result in any savings for local authorities and schools.

They asked respondents to suggest the best way to take forward discretionary relief (whereby authorities may grant a reduction to schools’ rates bills) under the new system. Lastly, they welcomed views on whether any of the proposals might have a positive or negative equalities impact, in particular on those who share protected characteristics.

Summary of consultation responses

Overall, the response to the consultation was positive, with strong support received from respondents who agreed that the move to centralised rates payments for schools would be simpler, and less burdensome, than the existing payment system. There was particularly strong support from schools which agreed that the new system would be an improvement to the current circular and resource-intensive process for paying business rates. The second largest group of responses was from local authorities and billing authorities which, overall, expressed the view that the proposals were workable subject to some operational considerations being addressed during implementation.

After careful consideration of the responses, the government intends to proceed with implementing the proposals. From April 2022, the business rates payment system for schools will be centralised. This will involve ESFA paying billing authorities directly on behalf of state funded schools, removing schools from the payment process. The first business rates payments made directly from ESFA to billing authorities will be paid in June 2022.

Next steps

The new business rates payment process for schools will come into force next financial year, with the online business rates portal due to open on 1 April 2022. Billing authorities will have until 31 May 2022 to upload bill data for all of the schools within their area, with the first payment to billing authorities due to be paid in June 2022. The online billing portal will reopen in June 2022 to allow billing authorities to upload any adjustments to billing amounts which arise, or come to their knowledge, after the first instalment has been paid.

The upload facility to record adjustments will remain open until February 2023, with a reconciliation payment made to billing authorities in February 2023. If they have not already done so, the DfE strongly encourages schools with multi-use sites to register buildings which are not used to deliver education for pupils at the school as a separate entity on the Valuation Office Agency’s rating list. This will ensure that two individual bills are generated – one for the school – which will be paid by the ESFA – and one for any other buildings which are not used to deliver education for pupils at the school, which can then be settled by the appropriate ratepayer.

Bill data which pertains only to the parts of a school site used to deliver education, and excludes any other bodies, can then be uploaded by billing authorities. When the new system comes into force ESFA will NOT be funding rates associated with buildings that are not being used to deliver education.

From 1 April 2022 the functionality for academies to submit historical claims for previously unclaimed years will be removed. Academies have until the end of March 2022 to submit any outstanding historical claims relating to the 2015/16 financial year onwards via the National non-domestic rates (NNDR) portal. From 1 April 2022, ESFA will no longer accept, process or reimburse academies for historical claims relating to unclaimed years.

The DfE would strongly encourage academies to submit any historical NNDR claims for unclaimed years as soon as is practicable so that ESFA can meet such claims promptly.