Property tax rises threaten serviced offices, chancellor told

Flexible working businesses have warned the chancellor that new property tax increases could push thousands of businesses to the brink and put jobs at risk.

More than 60 operators of serviced offices, business centres and co-working spaces, hosting more than 27,000 businesses across the UK, have written to Rachel Reeves expressing “urgent and deeply serious concern” over recent changes to the business rates system.

In a letter, seen by the Times, they accused the Valuation Office Agency, the government body that provides valuations that underpin commercial property taxes, of changing the way it charges business rates for office spaces without informing owners and occupiers.

Flexible workspaces are now being treated as a single property instead of individual units for business rates purposes, which means operators and their tenants face much higher bills. Previously, individual occupiers could claim reliefs such as small business rates relief.

Jane Sartin, executive director of the Flexible Space Association, the trade body that headed the letter, said the quiet reclassification of serviced offices “had been introduced without consultation and is already putting the future of many workspaces across the country in jeopardy. Operators are being hit with sudden, steep increases in business rates.”

She added: “Over 150,000 SME [small and medium-sized] businesses are losing the reliefs they depend on to stay open. Many centres are now on the brink. Those that survive will have no choice but to pass these costs on to the small businesses they host.”

The valuation agency has applied the change retroactively in some cases, with some operators reporting backdated bills of up to £400,000. FlexSA said the agency had refused to provide guidance or to explain its approach.

High streets could be dramatically hit by the changes to the business rates system, the Flexible Space Association says

ALAMY

The Valuation Office Agency (VOA) cited developments in case law, including Prosser v Ricketts (2024), Cardtronics v Sykes (2020) and Ludgate House v Ricketts (2019), as justification, but operators claimed those cases were not relevant to serviced offices.

More than 4,000 flexible workspaces operate across the UK, providing space to hundreds of thousands of small businesses, freelancers and start-ups. Operators warn that continued changes could force closures, reduce workspace availability and threaten jobs and growth nationwide.

FlexSA told Reeves: “High streets will hollow out. Growth will stall. Investment is drying up. There is no guidance and no clarity. This risks lasting damage to one of the UK’s most dynamic and productive sectors. It threatens jobs, weakens local growth and undermines the very small businesses that drive our economy.”

National Enterprise Network, which represents several business support organisations, warned that the changes could “trigger widespread business failures” and undermine a serviced office sector “still recovering from pandemic-related challenges”.

Tim Attridge, head of UK rating at CBRE, the commercial real estate company, said: “The business rates system was last modernised in 1990. The impact of the tax on sectors such as flexible workspaces has not been sufficiently considered. Rather than making changes to the methodology of valuation now, the VOA should cease from merging and backdating rating assessments before the basis of valuation is established via the appropriate litigation.”

A spokeswoman for the Valuation Office Agency said: “Developments in case law have meant that we have had to review the way serviced offices are assessed. As a result, many may now need to be treated as a single property rather than individual units, depending on their contractual arrangements.

“We understand this could have a financial impact on operators and we are engaging with industry representatives to discuss our approach. However, we are obliged to apply the law based on the facts in each individual case.”