Business Rates Reform 2026: 104,000 Small Firms Hit by Threshold Freeze

The Federation of Small Businesses says a decade-long freeze on the relief threshold, coupled with backdated changes hitting shared offices, is “directly undermining” the government’s growth agenda.

More than 100,000 small companies have been pulled into the business rates regime for the first time, prompting the country’s largest small business lobby group to demand an urgent rethink from the Treasury.

The Federation of Small Businesses (FSB) has written to Daniel Tomlinson, exchequer secretary to the Treasury, urging ministers to lift the threshold at which premises become liable for the property tax, and to reverse a separate change in methodology that is leaving start-ups and micro-businesses in shared offices nursing unexpected bills running into thousands of pounds.

By piling further costs on the smallest firms, the FSB warned, the existing regime “directly undermines the government’s own growth ambitions”, a pointed reminder that the chancellor’s pro-growth rhetoric is being tested on the high street as much as in the City.

Business rates are levied on most commercial properties in England and are calculated on a building’s rateable value, an estimate of its open-market annual rent set by the Valuation Office Agency (VOA). Single-site small firms pay nothing if their rateable value sits below £15,000, a threshold that has not budged in ten years.

That decade of inertia, combined with the VOA’s latest revaluation cycle, means an estimated 104,000 small business premises were dragged inside the rates regime when the new financial year began in April. Before taking office in 2024, Labour had floated raising the threshold for small business rates relief from £15,000 to £25,000. Two years on, the FSB wants the chancellor to honour the spirit of that pledge.

Lifting the bar, the group argues, would predominantly benefit firms outside the capital, where property values keep most premises below the £25,000 mark. “This would take thousands of businesses out of paying the regressive pre-profit tax that we know holds back growth,” the FSB said, “and these are primarily across the north-east, north-west, Yorkshire and south-west, where rateable values, and prosperity levels, are lower.”

The FSB’s letter also flags what it calls an “escalating problem” for firms based in serviced and shared offices, typically start-ups and micro-businesses that have driven much of the post-pandemic recovery in regional cities.

A VOA change to how rateable values are calculated for such buildings, introduced in April and applied retrospectively, has stripped many tenants of the relief they previously claimed. Some are now staring at backdated demands running to several thousand pounds, an issue that has already drawn warnings from operators that the reclassification could put serviced offices at risk across regional markets.

“If this change of methodology from the VOA continues unchecked, the impact would be concentrated overwhelmingly on micro-businesses and SMEs in second cities and regional economies,” the FSB warned, characterising the change as a quirk of how rules are being applied rather than a “deliberate intended policy decision by government ministers”. The group wants officials to revert to the previous methodology.

Calls for wholesale reform of business rates are scarcely new. Pressure has been building from across the economy, most recently from manufacturers, who are bracing for a £1 billion rates bombshell as April’s revaluation feeds through to factory bills, and from hospitality operators who saw Rachel Reeves accused of imposing a “nice pub tax” earlier this year.

The chancellor has committed to permanent reform, but a comprehensive overhaul remains stuck in the long grass. The issue continues to dog ministers, with the King’s Speech in 2026 doing little to allay business concerns that the political will for a meaningful redesign of the tax is still missing.

The FSB’s intervention echoes earlier warnings from the lobby group that the rates system has become an “indefensible” disincentive to invest. For owners of corner shops, salons and small workshops, the maths is simple: a tax levied before a penny of profit has been earned is a tax on ambition.

A Treasury spokesman said the government had “the right economic plan” and pointed to the £4.3 billion set aside to support businesses facing higher rates bills. For the 104,000 firms now opening a brown envelope for the first time, that figure may feel rather more abstract than the bill on the desk.

Jamie Young

Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.

When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.