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UK: More than 60 leading serviced office providers have united to condemn “a sudden and deeply damaging” tax change that they say will severely impact the country’s small business ecosystem.
In an open letter to Chancellor Rachel Reeves, operators of serviced offices, business centres and coworking spaces that home more than 27,000 businesses have voiced “urgent and deeply serious concern” over the Valuation Office Agency’s (VOA) decision to reclassify flexible workspaces as single hereditaments for business rates purposes. Previously occupants were treated separately and able to claim reliefs like Small Business Rates Relief (SBRR).
The shift, which is being implemented inconsistently across the country, is making many serviced office providers solely liable for the business rates of entire buildings. Faced with huge increases to their business rates liabilities, operators say they will have no choice but to pass the costs on to the small businesses they host, or risk closure themselves.
The Federation of Small Businesses (FSB) estimate these changes could effectively strip up to 150,000 SMEs who use serviced offices nationwide of their entitlement to Small Business Rates Relief (SBRR), forcing many to absorb sharp cost increases they would not face in conventional leased offices.
More than 4,000 flexible workspaces operate across the UK, providing space to hundreds of thousands of micro-businesses, start-ups, freelancers and entrepreneurs.
If the change continues to be rolled out, operators warn it will trigger a wave of closures, reduce workspace availability, and jeopardise jobs and growth in every region. As one operator put it, “many centres are now on the brink”.
The change in business rates assessments is already having an impact on operators. A small, single-site operator in the Midlands has been hit with a backdated business rates bill of £400,000, after the VOA merged its individually assessed offices into a single rating. This sudden change has left the operator liable for the entire valuation where previously each business in the building was assessed individually. The operator is challenging the assessment, but if this fails, it will have to pass the costs onto the dozens of small firms using its services, or face closure.
Another operator, the Kinetic Centre in Borehamwood, Hertfordshire, has had to pause expansion plans amid uncertainty over the proposed changes. After growing its centre by 20 per cent in 2024, it had planned to double in size again by 2026 to meet rising demand from small media businesses. “If this goes ahead, our costs will rise dramatically, making it unaffordable for many of our clients, the very firms driving growth around the new Sky and Netflix studios,” it warned.
Sector representatives have repeatedly raised the alarm with HM Treasury Ministers about the damaging impact of this reclassification. However, despite numerous letters and meeting requests, including direct outreach by the Flexible Space Association, Ministers have so far refused to meet with sector representatives.
FlexSA executive director Jane Sartin said: “This is an existential threat to a sector that underpins the UK’s SME economy. The flexible workspace industry provides cost-effective, professional and scalable spaces to over 150,000 small businesses. Reclassifying these spaces as single hereditaments not only misrepresents how they operate, it also strips vital support from the very businesses the Government claims to champion.”
Camilla Smith, MD of the Kinetic Centre, said: “We are a serviced office provider currently benefiting from Small Business Rate Relief (SBRR) on behalf of our clients and passing the savings onto them. In 2024, we expanded our centre by 20 per cent and had plans to double that expansion by 2026. However, the government’s proposed plan to merge serviced offices for business rate purposes has forced us to pause these plans. If this change goes ahead, we will lose eligibility to claim SBRR on behalf of our clients. The immediate impact would be a significant rise in overhead costs, which we would have no choice but to pass on to our clients.”
Richard Johnson, MD of UBC, which has 15 offices across the country, added: “We were planning to invest in a new site in an area that’s only just starting to recover after years of economic stagnation. Flexible workspace has been a proven catalyst for bringing people, jobs and energy back into places like this. But with these sudden changes, that investment is now on hold. The uncertainty has stopped projects like ours in their tracks, and the confidence that’s helped regenerate towns and cities across the UK is rapidly fading.”
Highlights:
• More than 60 leading serviced office providers have united to condemn “a sudden and deeply damaging” tax change that they say will severely impact the country’s small business ecosystem
• The Valuation Office Agency’s (VOA) has reclassified flexible workspaces as single hereditaments for business rates purposes. Previously occupants were treated separately and able to claim reliefs like Small Business Rates Relief (SBRR)
• Previously occupants were treated separately and able to claim reliefs like Small Business Rates Relief (SBRR)
• If the change continues to be rolled out, operators warn it will trigger a wave of closures, reduce workspace availability, and jeopardise jobs and growth in every region
