Thousands of start-ups and sole traders in WeWork-type offices could be hit with business rates after a shake-up that campaigners say stifles growth.
The Federation of Small Businesses (FSB) has sounded the alarm that many firms could be forced to shut down if vital tax relief is taken away from them.
Small business rate relief (SBRR) reduces firms’ annual business rates bill, with the potential for a 100 per cent discount on some properties.
The Valuation Office Agency (VOA) has started to disqualify firms in shared office spaces from SBRR, with tenants in up to 4,000 properties facing bills for the first time.
This is in response to a recent legal ruling which determined that individual rooms in barristers’ chambers were not eligible for small business rates relief.
For example, sole traders in a shared office with a rateable value of £230,000 with 20 tenants sharing facilities such as meeting rooms, IT space and storage might each be classed as being in a property with a rateable value of £11,500.
Drama: WeWork’s rise and fall was depicted in an Apple TV docuseries
This is less than the £12,000 SBRR threshold. But under the changes they could see their rates bills go from zero to £5,750 a year, the FSB estimates. And the federation fears the precedent will see thousands more firms, including those in food halls and market spaces, dragged into the tax-paying bracket in a VOA review in April.
WeWork led the way in shared office spaces and was once valued at £38 billion before going bust – a saga covered in the documentary WeWork: Or The Making And Breaking Of A $47 billion Unicorn. It has since been rescued, but today the focus is on the plight of its tenants.
The FSB warns that a loss of relief could ultimately directly affect about 150,000 small businesses and sole traders. It has called on the Government to change the system as small businesses grapple with higher costs after last year’s Budget.
FSB policy chair Tina McKenzie said: ‘This creeping change is really limiting growth among small businesses. This shift in how the VOA works needs to be addressed immediately.
‘We want to work with Government to create a fair business rates framework that makes sure small firms in shared spaces remain eligible for SBRR, a lifeline for many. We need to be providing all the tools available to revitalise and create thriving high streets.’
Business rates, which are a levy based on the value of a commercial property, are a major point of contention between businesses and Rachel Reeves.
Many are nervously waiting to see what the Chancellor announces on business rates in the Budget on November 26.
She is set to axe another Covid-era business rates relief for retail, hospitality, and leisure properties. This currently offers 40 per cent relief up to a cash limit of £110,000 per business.
She is poised to replace this relief and confirm controversial reforms that will see larger shops taxed more in order to pay for lower bills for small firms.
The Treasury was contacted for comment.
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