The UK government is set to implement significant changes to the business rates system, aiming to create a fairer structure that supports high street businesses, encourages investment, and adapts to the evolving economic backdrop. These reforms, announced in the Autumn Budget 2024, will be phased in over the next two years, culminating in what the government claims will be ‘a major transformation’ alongside the 2026 property revaluation. 

For small business owners, understanding these changes is crucial for effective financial planning and decision-making.

Current situation and upcoming changes

• Retail, Hospitality, and Leisure (RHL) Relief

For the 2024/25 tax year, eligible RHL businesses continue to receive a 75% discount on their business rates bills, up to a maximum of £110,000. However, from 1 April 2025, this relief will be reduced to 40%, still subject to the £110,000 cap per business. This change means many businesses in these sectors will see their rates bills nearly double in 2025/26.

• Multiplier Adjustments

The government has announced a freeze on the small business multiplier at 49.9p for 2025/26, which applies to properties with a rateable value below £51,000. The standard multiplier for properties with a rateable value of £51,000 or more will increase from 54.6p to 55.5p.

Long- term reforms from 2026

• New Multiplier Structure

From April 2026, the government will introduce a more complex multiplier system:

• Small business RHL multiplier for RHL properties with RV below £51,000
• Standard RHL multiplier for RHL properties with RV £51,000 – £499,999
• Large multiplier for all properties with RV £500,000 and above
• Small business multiplier for non-RHL properties with RV below £51,000
• Standard multiplier for non-RHL properties with RV £51,000 – £499,999

This new structure aims to provide longer-term support for high street businesses while shifting some of the tax burden to higher-value properties.

The impact on small businesses:

Stability for Most Small Businesses

The freeze on the small business multiplier at 49.9p for 2025/26 offers immediate relief, maintaining stability for small enterprises with properties valued under £51,000. This freeze will benefit over a million small businesses in England, protecting them from inflationary increases.

Changes for RHL Businesses

Small businesses in the RHL sectors will see significant changes:

• The reduction of RHL relief from 75% to 40% in 2025/26 will lead to increased rates for many businesses in these sectors.
• From April 2026, new lower multipliers will be introduced for RHL properties with a rateable value below £500,000, providing more sustainable long-term support.

Long-term Support for High Street Businesses

The introduction of lower multipliers for RHL properties from 2026 aims to provide more sustainable support for smaller high street businesses. This change recognizes the challenges faced by brick-and-mortar establishments and seeks to level the playing field with online competitors.

Potential for Growth

The new structure may incentivize some businesses to expand, as the cliff-edge effect of the current system is being addressed. The gradual increase in rates based on property value could encourage businesses to invest in growth without fear of sudden, dramatic increases in their rates bills.

Practical steps to consider

Small business owners may wish to consider the following:

1. Assess Your Property Portfolio: Review the rateable values of your properties to understand where you’ll fall under the new system.
2. Review Current Rates Bill: Ensure your property is being valued and assessed correctly. Addressing any discrepancies with the local authority now can save time and money in the future.
3. Budget for Changes: If you’re an RHL business, prepare for the reduction in relief in 2025/26. Start budgeting for these changes to avoid financial strain.
4. Stay Informed: Watch out for further announcements, as precise definitions and multipliers will be confirmed by Autumn 2025.
5. Consider Investment Timing: With potential changes to investment incentives in the business rates system, carefully consider the timing of any significant property improvements or expansions.

Additional reforms and considerations

The government is also planning to engage with stakeholders regarding further reforms, including:

• Exploring ways to incentivise investment and growth.
• Consulting on adopting a ‘General Anti Avoidance Rule’ for business rates in England.
• Proceeding with the Digitalising Business Rates project by 2028, to be enabled by 2029.

Conclusion…

These business rates reforms represent a significant shift in the UK’s approach to property taxation for businesses. While they aim to provide more support for smaller high street businesses, the immediate impact of reduced RHL relief may pose challenges for some.

As these changes unfold, it’s crucial for small business owners to stay informed and plan accordingly. The new system offers potential benefits, particularly for high street businesses, but also requires careful financial planning and strategic decision-making.

If you’re unsure about how these reforms might impact your business or need help in preparing for the changes, please get in touch.