Scarborough Council is pushing the Government to clamp down on people using a loophole in the business rates system to avoid paying millions of pounds in council tax on second homes.
The authority has been in discussions with other councils about a flaw in the tax system that allows people to register second homes as businesses in order to claim relief from tax payments.
More than 2,000 properties in the Scarborough borough would be affected by a change in legislation.
A report prepared ahead of Scarborough Council’s cabinet meeting on Tuesday next week notes that under current legislation, second homeowners can let out their properties for, in some cases, large amounts of money every week.
It adds that these homeowners “pay no taxation whatsoever into the local economy as they are eligible for the property to be assessed under the business rates legislation and can then apply for small business rates relief”.
Scarborough Council leader, Cllr Steve Siddons (Lab), is looking to work collaboratively with South Hams, North Norfolk, the Isles of Scilly, South Lakeland, Dorset, and Cornwall councils to jointly lobby the Government for a change in the legislation so that self-catering accommodation is taxed solely through the council tax system.
Cllr Siddons said he was surprised how much money the authority was missing out on with conservative estimates putting the figure of avoided council tax at £2.56million a year. Of this figure, Scarborough Council would keep approximately £330,000.
Cllr Siddons said: “People are using this loophole to avoid paying any kind of council tax at all, I’m sure this is not the way the Government intended the system to work.
“My opinion is that if you are using services then you should be paying for them.
“There will be some people who are honest and are paying tax but we know there are others who are not.
“There are a number of loopholes that people can use to manipulate the system avoid paying council tax and we would like to see those closed.
“People can let out their house and classify it as a business which means they don’t pay council tax and instead pay business rates. But as they likely have a rateable value below £12,000 they can claim relief on that and pay nothing at all.”
The leader will ask his cabinet to delegate authority to him to lobby the Government at Tuesday’s meeting.