Business rates reform: What the Treasury's plans mean for small firms

The Treasury has published its interim report on business rates reform, setting out the direction of travel ahead of the Autumn Budget on 26 November 2025.

It tackles some of the biggest flaws in the current system, from cliff edges that penalise growth to the blunt way bills are calculated.

Why business rates are a serious burden on UK small businesses

Business rates raise about £26 billion per year for the government, making them one of the biggest tax burdens on business premises in the UK.

But they're also a key source of government revenue. Small business rate relief costs the government around £8 billion annually, according to independent charity IPPR.

Figures from the British Property Federation's report Business Rates: The Wider Economic Impact show that for retail, leisure and hospitality businesses, business rates account for about 15% of the cost of employing a full-time worker on a median wage. For a small retailer, that's an average increase of around £3,600 a year.

Taken together, a significant number (44%) of small businesses identify business rates as a barrier to their growth and expansion, according to the UK SME Survey from the Association of International Certified Professional Accountants (AICPA).

What our members think

Mike Turner, co-founder of tea business Bird & Blend Tea Co, which has 27 stores across the UK, says:

"Business rates are a legacy scheme that has been damaging high streets and harming jobs for too long.

"In a post-pandemic world – where retail has changed massively and landlords are often negotiating turnover based rents – a tax scheme that discourages physical retail makes even less sense.

"So we're excited to hear proposals for an updated tax system fit for the world we live in."

What the government is doing to address this

The government will explore moving from the current "slab" system – where the full rateable value is taxed at one rate – to a fairer "slice" model, where bands are taxed at increasing rates – similar to income tax.

Ministers have confirmed they are looking at how to remove the sharp cliff edge that wipes out relief when a firm takes on a second property.

Furthermore, the 12-month window for rate relief on qualifying property upgrades, in place since April 2024, could be lengthened once more data is available.

Revaluations will remain every three years, but the Treasury is considering shortening the "valuation date" gap to make bills more responsive.

From April 2026, retail, hospitality and leisure properties with a rateable value under £500,000 will benefit from permanently lower multipliers, funded by a higher rate on large properties. Exact rates will be set at the Autumn Budget.

Aaron Asadi, CEO of small business support platform and membership community Enterprise Nation, says:

"Getting that second shop – that second set of keys – has been too hard for too long. The recommendations set out in today's interim report are the kind of changes small businesses have been calling for. Current business rates have too often acted as a barrier to investment and growth.

"We strongly welcome the Chancellor's commitment to tackle cliff edges, move from a "slab" to a "slice" model and enhance small business rate relief – all priorities we've highlighted in our submissions to government. Extending improvement relief to reflect real investment cycles is also vital.

"Our 145,000-strong community of founders and freelancers need stability, predictability and plain-English clarity on their bills. If these reforms are delivered well, they could give small businesses the confidence to invest, expand and revitalise high streets across the UK."

What this means for small businesses

• Expanding becomes less daunting: The current rule that strips away relief once you open a second site is under review. Fixing this cliff edge could make taking on new premises less daunting.

• Proportional bills: A slice model would prevent sudden jumps at thresholds and smooth bills across bands.

• Investment rewarded: If improvement relief is extended beyond 12 months, firms investing in multi-year upgrades won't face an immediate tax penalty.

• High-street certainty: For shops, cafes and pubs, permanent lower multipliers from 2026 will replace year-to-year discounts with a structural cut.

How this stacks up with what we've called for

Enterprise Nation has consistently pressed for business rates reform. In our 2025 Spending Review submission, we set out two priorities:

1. More local authority discretion over reliefs. We argued councils should have more power to tailor support for small firms, co-working spaces and charities. The interim report focuses on national structural reform, not local discretion – which leaves a gap.

2. A levy on commercial-to-residential conversions. We proposed a mechanism to discourage tax-driven conversions that hollow out high streets. The Treasury has not touched this issue, leaving another gap.

On the positive side, the Treasury's focus on removing cliff edges in small business rate relief and extending improvement relief directly reflects the changes we've long pushed for.

This is a step in the right direction. Tackling cliff edges, smoothing bills through slice-based bands and giving high-street firms permanent certainty could make a real difference – provided delivery matches the ambition.