A landmark court of appeal ruling has signalled the end of a widely used tax avoidance scheme believed to have cost local authorities more than £1bn. The scheme, known as 'box shifting', involved moving boxes in and out of vacant commercial buildings to claim repeated three-month business rates holidays.
The case centred on 2 America Square, a seven-storey office block in London's financial district, leased by a Virgin Islands-based company called 48th Street Holdings Ltd. Much of the building is home not to employees but to stacks of nondescript black boxes arranged in neat lines.
How the scheme worked
The controversial practice dates back to 2008, when the last Labour government changed business rates rules, meaning occupiers of vacant buildings no longer qualified for a 50% discount on the levy. However, they were entitled to claim a three-month rate holiday at the end of each tenancy – and the 'box shifting' scheme was born.
With commercial property owners facing higher bills, a lucrative 'rate mitigation' industry emerged. Historically, this typically involved boxes being moved into the empty space at the end of the three months and back out after just six weeks. The building then became unoccupied again and the clock was reset, allowing the owner to claim another three-month rate-free period.
This cycle continued, designed to cut the rates owed by up to 67%, until a new long-term tenant could be found. It has been costing one London council an estimated £35m a year since the pandemic, when the number of claims for empty property relief doubled.
Court rulings
Last month, three court of appeal judges ruled that the scheme 'cannot amount to beneficial occupation'. The case was brought by the City of London Corporation against 48th Street Holding Ltd and a second company, Principled Offsite Logistics Ltd (POLL), which provides 'rate mitigation' services.
48th Street paid £27.6m for a lease on the office block in 2019 before it brought in POLL to save £111,475.30 in rates across a series of three-month periods in 2022 and 2023. POLL describes itself as 'the largest and most reliable' provider of 'empty business rates mitigation' in the UK and is jointly owned by a Labour councillor from North Hertfordshire.
The court of appeal overturned a high court decision, with Lady Justice Falk ruling: 'In my judgment, ‘occupation’ for, in effect, the sake of it, and which has no use, value or benefit other than rate saving, does not amount to occupation for the purpose of the statutory scheme.'
Reaction and next steps
A City of London Corporation spokesperson said: 'We welcome the court of appeal’s decision, which represents a significant victory for local authorities across England. This landmark ruling closes one of the most widely used tax avoidance schemes in the country and helps safeguard revenues that support essential public services.'
A government spokesperson said: 'We recognise concerns about the misuse of Empty Property Relief, which exists to support genuine property owners between tenants. Business rates avoidance is unacceptable and we are taking the necessary action to address this, and make sure that businesses are paying the tax they owe.'
It is unclear what action the government is planning, but there are calls for a general anti-avoidance rule to control the rate mitigation industry. POLL is not the only business offering box shifting; the same scheme was even used by Public Health England at its future headquarters in Harlow in 2018.
One rating expert said that the total cost to councils of box shifting could have topped £1.5bn, and some of that money should now be reclaimed as a deterrent. Under the terms of POLL's contracts with clients, its success fees are refundable in the event the scheme fails. The latest accounts show it has just over £500,000 in net assets.
POLL did not respond to a request for comment and its website went down this week, replaced with a message which read: 'This account has been suspended'. The company's founder, Steven Dawson, died in 2024 and POLL was acquired in a management buyout by two of its own executives, one of whom is Labour councillor Sarah Lucas.
The rules on empty property relief changed in 2024 and buildings now need to be occupied for 13 weeks instead of six in order for the three-month holiday to apply. According to one recent judgment, this makes box shifting schemes 'less attractive but still effective'.
