Business rates relief to be slashed – how to cut costs

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published 4 December 2024

Good news and bad on business rates. The positive policy in the Budget was that business-rate reliefs that had been due to end next April will now be extended. Less happily, they will not be so generous, and there is still no detail of Labour’s promised overhaul of the much-criticised business rates system. The headline numbers are worrying. Businesses in the retail, hospitality and leisure sectors are entitled to discounts of up to 75% on their business rates bills under a scheme introduced by the last government during Covid. From next April, these reliefs will come down to only 40%.

Analysis from property group Altus suggests these reductions could prove very costly, with 250,000 high-street premises in England facing an average 140% rise in their bills for the 2025-2026 tax year. The typical shop will see its business rates bill climb from £3,589 to £8,613 next April. The average restaurant will see its bill rise from £5,051 to £12,122.

There is worse to come. Business-rate reliefs will come to an end entirely in April 2026. Retail, hospitality and leisure firms will then face another big rise in costs unless other help is announced. Ministers note that these reliefs were always meant to be temporary and that eligible firms will still be getting more support than was available prior to the pandemic. Moreover, the retail, hospitality and leisure sectors are getting far more support than other businesses: firms don’t receive relief on factories, or on office or warehouse accommodation.

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However, critics say the Budget’s documents reveal that next year’s lower reliefs will cost firms £900 million. Effectively, this is another tax increase on top of the controversial national insurance hikes for employers. There is also frustration that Labour hasn’t yet published any plans for reforms of the system, which it promised prior to the election. Business rates have long been seen as outdated, putting businesses using bricks-and-mortar premises at an unfair disadvantage to those that largely trade online.

The government is still promising business rates reform, with the chancellor committed to introducing a new system that offers more of a level playing field between physical and online businesses. So far, however, all it has announced is the Non-Domestic Rating Bill, which will enable it to calculate business rates in different ways for certain sectors – and thus reduce rates for certain businesses. While ministers have suggested leisure, hospitality and retail businesses could be beneficiaries here, the changes fall well short of Labour’s manifesto commitment to abolish business rates altogether. Business groups want a new system that is much more flexible and cuts the burden of property taxes. In the meantime, many small businesses can escape these charges by claiming small-business rate relief. This concession applies to firms using only a single property with a rateable value of less than £15,000. If you’re in a property with a rateable value below £12,000, there are typically no business rates to pay at all; for those rated between £12,000 and £15,000, a sliding scale of discounts applies.

A range of other reliefs could also prove useful. Many charities are eligible for business rates relief of up to 80%, and there are also schemes for groups including rural businesses, local newspapers and empty properties. In addition, the transitional relief scheme means that if your business property has been rerated under the recent revaluation scheme, there are caps on how much extra you can be asked to pay each year.

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.