Government Proposes Overhaul to Business Rates System

The UK government is contemplating pivotal reforms to the current tax system, aiming to facilitate the expansion of small and medium-sized enterprises (SMEs), particularly within the hospitality sector. According to a recently published Treasury report, Chancellor Rachel Reeves has unveiled a series of proposed changes designed to cut red tape and encourage business growth.

Currently, small businesses benefit from the Small Business Rates Relief (SBRR), which provides full relief for single-property occupancies with a rateable value of £12,000 or less. However, this relief is withdrawn when a business acquires a second site, hence introducing what are commonly known as "cliff edges." Businesses then face steep increases in business rates, which can act as a deterrent to expansion.

Stakeholders have urged the Treasury to rethink these thresholds and conditions. Recommendations include raising the rateable value threshold and abolishing the single-property rule, both of which are seen as barriers to growth. In response, the government has indicated a willingness to "consider options" to address these cliff edges, albeit with a caveat about the broader fiscal implications any changes would entail.

In a bid to further support the retail, hospitality, and leisure sectors, Reeves announced the introduction of permanently lower tax rates for properties with rateable values below £500,000, effective from April 2026. This move aims to bolster economic growth within these vital sectors of the economy, with specifics expected to be revealed at the Budget on 26 November.

The Treasury report highlights a current 40% discount on business rates for approximately 250,000 retail, hospitality, and leisure businesses, coupled with a freeze on the small business multiplier to shield businesses from inflation.

Chancellor Reeves articulated the motivation behind these reforms, stating, "Tax reforms such as tackling cliff edges in business rates and making reliefs fairer are vital to driving growth. We want to help small businesses expand to new premises and build an economy that works for, and rewards, working people."

Kate Nicholls, Chair of UKHospitality, welcomed the proposed changes. She remarked, "For too long, the broken business rates system has unfairly punished hospitality businesses, and I’m pleased that the government is taking action to reform it."

Nicholls further advocated for the maximum discount on the multiplier for hospitality properties under the £500,000 rateable value threshold. She also called for a zero rate for properties exceeding this value to maintain a level playing field across the high street.

These proposed reforms signify a potential turning point for small businesses and could pave the way for more vibrant economic activity across the UK.