Businesses to benefit from rates reforms, says government

As reported by ICAEW

The government has announced that it will explore options for reforming business rates, including overhauling small business rates relief to make it easier for smaller businesses to invest and grow.

The government has published an interim report setting out how it intends to reform the business rates system in England in order to: 

• incentivise investment and growth;

• support the high street; and 

• make the system fit for the 21st century. 

  
  

This follows the publication of a discussion paper alongside the Autumn Budget 2024.   

The government will: 

• Explore the case for changing the way in which business rates are calculated. Currently, the relevant multiplier (tax rate) is applied to the full amount of the property’s rateable value (RV) in what is known as a “slab” method of calculation. The government will consider if changing to the “slice” method, where successive bands are taxed at increasing rates, could stimulate investment. 

  
  

• Review small business rates relief (SBRR). The government says that SBRR can discourage a business from expanding as, subject to limited exceptions, it is restricted to businesses occupying a single property with an RV of £15,000 or less. The government will explore options to remove the sudden increases in liabilities (known as “cliff-edges”) that can result from SBRR withdrawal.

  
  

• Consider how improvement relief (IR) could be enhanced. IR provides a 12-month relief for qualifying property improvements. Feedback received by the government suggests that there may be a case for reforming IR, including extending the 12-month window and expanding the scope of the relief. The government will consider the case to address this feedback once more data is available to establish how IR is currently being used.

  
  

• Deliver a transitional relief package for the 2026 revaluation. The Valuation Office Agency (VOA) updates the RVs of properties every three years to reflect changes in the property market. The next revaluation is due to come into effect on 1 April 2026. A package of measures will be announced at Autumn Budget 2025 to protect businesses from large increases in business rates bills. 

  
  

• Investigate options to address concerns over the “receipts & expenditure” (R&E) methodology ahead of the 2029 revaluation. The R&E method is used where there is a lack of rental evidence and so it is difficult to calculate the annual rental value of a property. Feedback received by the government suggests that uncertainty in relation to the R&E methodology may be having an impact on investment. 

  
  

• Evaluate the possible benefits of shortening the antecedent valuation date (AVD) in the future. The AVD is the date on which the VOA estimates the rental value of a property, typically two years before the next business rates revaluation. The government believes that this measure could improve the responsiveness of the business rates system. 

  
  

• Use the VOA/ HMRC merger to secure administrative changes that benefit businesses. As previously announced, most of the VOA’s functions will be brought into HMRC by April 2026.  

  
  

The government has ruled out increases to revaluation frequency in order to provide businesses with certainty. 

Additionally, the government says that “transforming the business rates system is a multi-year process” and that “any reforms taken forward will be phased in over the course of the Parliament”. 

At the Autumn Budget 2025, the government will: 

• provide a further update on its plans;

• confirm the details of the transitional relief package ahead of the 2026 revaluation (see above); and

• set the rates for the two new multiplies for retail, hospitality and leisure properties announced at the Autumn Budget 2024.