Business Rates and How the Reform Could Impact You

Business rates in England and Wales are levied on non-domestic properties and are a significant tax for businesses across various sectors. The amount businesses pay is determined based on the property’s rateable value, which the Valuation Office Agency assesses and then pays to the local authority. 

This tax can be a considerable expense, particularly for those in high-street locations where property values tend to be higher. Since 2020, however, retail, hospitality, and leisure properties have benefited from a measure known as retail relief, which provides these sectors with a reduction in their business rates bills. This relief has been a lifeline for many, especially during challenging economic times, helping businesses keep their doors open during difficult periods.

Looking ahead, the scheduled end of retail relief in April 2025 has amplified industry-wide concerns regarding the ongoing tax burden on businesses. Recently, over 70 leading retail CEOs joined forces to sign an open letter to the Chancellor, urging the Government to address these challenges through reform of the business rates system. 

The letter highlights a critical issue: the retail sector bears a disproportionately high share of business rates in relation to its overall economic activity. According to the signatories, this imbalance has been a significant factor in store closures and job losses within the industry. To alleviate this pressure, the letter proposes a 20% reduction in business rates bills for retail properties, irrespective of their size or location.

How the Reform May Look

Labour has responded to calls for change, making a commitment to reforming the business rates system in a way that preserves revenue while redistributing the tax load more equitably. In their manifesto, Labour outlined that the existing business rates system discourages investment, adds uncertainty for businesses, and places an undue burden on high streets, particularly impacting smaller, independent businesses. 

Although Labour has not provided detailed plans for how they would enact this reform, they have indicated that the changes would aim to “level the playing field” between traditional high-street businesses and large online corporations. Their vision includes a system that better incentivizes investment and encourages entrepreneurship within local communities.

Among the potential reform options, one approach might involve introducing different multipliers for various types of property, such as applying a lower tax rate for retail properties. Another possibility under consideration is changing how rateable values are calculated. Currently, a property’s rateable value is based on the estimated annual rent it could generate on an open market, but an alternative model might consider the profits of the occupying business. 

Under this model, more profitable businesses would face higher business rate bills, while less profitable enterprises would pay proportionately less. Such changes aim to balance the financial load between different types of businesses, making business rates a fairer system overall.

What This Means for Businesses

The upcoming changes will have varied implications across different sectors, particularly affecting businesses in retail, hospitality, and service industries. Smaller, independent businesses might benefit from a reduction in rates, which could ease their financial pressures and help them stay competitive. 

Conversely, larger corporations, particularly those operating highly profitable ventures, may find themselves subject to stricter regulations and potentially higher business rate obligations. In light of these possible reforms, businesses should seek professional advice on how the new system might affect their specific circumstances. Legal guidance can provide valuable reassurance, especially for tenants contemplating whether to downsize or explore options for lease adjustments, such as exercising a break clause.

For more information on how these potential reforms could impact your business, or to discuss your specific situation in detail, please get in touch to learn more about how we can assist.