Government business rates reforms in focus as industry highlights potential consequences

Hot on the heels of the Non-Domestic Rating Act 2023 coming into force, the new government announced preliminary steps in its Autumn Budget to reform the business rates system.

The key changes introduced by the Act, combined with the proposals outlined in the Budget, are set to have a major impact on businesses in the coming years. This sentiment was echoed by the retail industry in an open letter to the Chancellor, Rt Hon Rachel Reeves MP, from the British Retail Consortium (BRC), which was backed by more than 80 major retail businesses.

The letter expressed ‘significant concerns about the impact of the Budget on the retail industry and its economic consequences for inflation, employment, and investment’.

Non-Domestic Rating Act 2023

The Act became law in Autumn 2023 and introduced a number of reforms to the business rates regime. The main changes implemented by the Act include:

• The duty to notify which requires all ratepayers to notify the Valuation Office Agency (“the VOA”) of any change to a property they are responsible for, whether it has an existing rateable value or not, within 60 days of the change.
• The introduction of completion notices whereby a local authority can force a new building to be assessed before it has been occupied, albeit recipients can appeal against the notice within a small window.
• Improvement relief whereby any improvements to an occupied property after 1 April 2024 will get a 12 month exemption from any rates payable on the improvement.
• The removal of the option to appeal for a rates reduction as a result of any impact on the use or enjoyment of a property due to Government imposed restrictions. This does not impact the opportunity to appeal for a reduced rateable value where a property is otherwise affected by external or internal disruption.
• The frequency of rating revaluations will increase from every five years to every three years and ratepayers can request data from the VOA as to the valuation process in relation to their property.

The Act is intended to modernise the business rates regime and streamline the accessibility to relief, albeit it will inevitably devolve a significant administrative burden to the ratepayer, notably with regards to the duty to notify and the timely provision of relevant information to the VOA and HMRC.

Autumn Budget

In its Autumn 2024 Budget, the government announced the initial steps it will take to reform the business rate system, which include the following:

• An intention to introduce permanently lower multipliers for retail, hospitality and leisure properties with a rateable value (“RV”) under £500,000 from April 2026-27.
• An intention to fund the introduction of lower multipliers sustainably via a higher multiplier on properties with a RV of £500,000 and above, which includes the majority of large distribution warehouses including those utilised by online businesses.
• Providing support for retail, hospitality and leisure properties in the interim period leading up to the new permanent multiplier by providing 40% relief to businesses on their rates bill in 2025-26, up to a cash cap of £110,000 per business. The present rate of relief is 75% albeit this was previously due to be reduced to zero on 31 March 2025 so the announcement represents a degree of cushioning.
• Protecting the smallest properties by freezing the small business multiplier in 2025-26 and protecting over a million properties from inflationary bill increases.
• Preventing private schools from being able to benefit from charitable rates relief.

The above steps are intended to be the starting point in a complete overhaul of the business rates system and the government has confirmed that it will “work in partnership with businesses and other stakeholders” to design these changes.

As outlined in the BRC letter, questions do, however, remain about the extent to which the proposed reforms will ease pressure on smaller businesses in already struggling sectors - or whether they might do the opposite. Nonetheless, it is clear that this is becoming a focal point for the government.

It will be interesting to observe how these adjustments evolve, especially as industry voices express concerns about the potential impact on business viability. Shoosmiths’ real estate experts will be closely monitoring the situation and providing further analysis on changes to the rates system.