A potential £1.5 billion increase in business rates liabilities could place significant pressure on flexible workspace providers and risk pricing small businesses out of office space, according to global tax firm Ryan.
Previous estimates have suggested the changes could add around £600m to the sector’s tax burden. However, Ryan’s analysis shows that, if applied at scale and backdated to April 2023, the cumulative exposure could reach up to £1.5bn, before the 2023 Rating List closes in March 2027.
The warning follows changes to how serviced offices are assessed, which could see properties reclassified as single hereditaments, shifting liability to operators at building level.
Ryan has described the impact as an “SME Workspace Tax”, reflecting the likelihood that increased costs will ultimately be passed through to occupiers via higher rents.
There are 87,770 serviced office assessments across England and Wales according to Ryan.
Shayla Cairns, Director of Property Tax at Ryan, said:
“If these additional costs are forced through the system, the impact will not stop with operators. There is a real risk that start-ups and smaller businesses are priced out of flexible workspace, effectively creating an ‘SME workplace tax’ at the point they are trying to grow, as a key driver of economic growth.
The average rateable value of serviced office units is £8,463, meaning many occupiers currently fall below the £12,000 threshold for 100% Small Business Rates Relief. Where properties are merged, that relief is effectively removed in practice.
In more exposed parts of the market, particularly in regional and non-prime locations, if demand weakens as a result, the consequences could be significant. In that scenario, the risk of hundreds of closures among smaller and independent operators cannot be ruled out.”
The changes follow developments in case law, including Cardtronics UK Ltd v Sykes, which reinforce the role of paramount control in determining who is liable for business rates.
The issue is also the subject of ongoing legal challenge. Permission has been granted to pursue a Judicial Review relating to the approach to serviced office assessments. In granting permission, Mrs Justice Lang DBE noted that “the Claimant has raised arguable grounds which merit consideration at a full hearing”, underlining the extent to which the position remains contested and continues to create uncertainty across the sector.”
To learn more visit: https://ryan.com
