A “landmark legal case” is set to be launched which could dramatically reduce the business rates paid by NHS trusts, according to a trust’s board papers.

The bid for a “charitable rate exemption” seeks an 80 per cent discount on business rates, which for some providers would equate to millions of pounds per year.

Business rates are a key source of income for councils, and the case risks damaging relations with local authorities.

According to minutes of a committee meeting published by York Teaching Hospital Foundation Trust, the trust is confirmed to take part in the action, while 20 others have been invited to join. The trust declined to comment or provide more information.

It comes after trusts were hit by a hike in rates in April, which followed a revaluation of properties in England. For some providers this meants bills increasing by millions of pounds per year, with those in London among the worst affected. A recent finance paper published by Barts Health Trust referred to £6.5m of new cost pressures relating to business rates in 2017-18.

The business rates issue was first raised in 2016, when it was reported that around 80 trusts had written letters to their council to claim they were eligible for the exemption. They reportedly claimed a tax rebate covering the previous six years, worth a combined £1.5bn.

A senior source at one of the trusts told HSJ that councils had rejected the claims, but a “test case” is set to be launched in the courts by one of more trusts, supported by property consultancy firm Bilfinger GVA.

Minutes of a committee meeting at York Teaching Hospitals Foundation Trust in August said the trust has “signed up to a landmark legal case”, with another 20 or more providers “invited to join”.

The minutes said legal papers would be issued to each trust’s principal billing, and that subject to the response, proceedings would be “tentatively scheduled for September”.

They added that a further piece of work was taking place “regarding the impact on our relationship with the local authority if the test case is successful”.

The timescale may have slipped, because when HSJ contacted Bilfinger GVA, a property consultancy representing the trust, said it could not comment at this stage. York Council would not comment either.

NHS trusts have been considered as public sector-funded organisations rather than charities, partly because they have boards of directors rather than trustees. Universities already qualify for relief, as do some private healthcare providers, such as Nuffield Health, as it is registered as a charity.

However, the move has been criticised as as one part of the public sector taking money from another. A spokesman for the Local Government Association said: “We remain of the view that NHS trusts and foundation trusts are not charities and therefore not eligible for mandatory non-domestic rate relief.”

It has previously estimated that the exemption would be worth around £250m per year, with the rebate costing £1.5bn.

Business rates are calculated on the rental value of a property and were updated in April for the first time in seven years.