UK to explore fixing 'cliff edge' business rates for SMEs

UK Chancellor Rachel Reeves is exploring ways to overhaul the sudden jump in business rates – known as “cliff edges” – that prevent small and medium-sized enterprises (SMEs) from expanding their businesses.

Most SMEs lose access to all Small Business Rates Relief (SBRR) when they open a second property, resulting in their taxes increasing significantly, according to HM Treasury’s business rates interim report, published on 11 September.

In the UK, business rates are a tax levied on commercial properties.

“We will explore the case for transforming business rates from a ‘slab’ to a ‘slice’ approach and for strengthening Small Business Rates Relief to support small businesses to grow,” the Treasury said in the report.

The government is also considering other ways to improve support for businesses that invest in their premises and make the rates system easier to navigate. Options being considered include changing the way tax is calculated to minimise cliff edges and enhancing Improvement Relief, which can be given to businesses that make certain improvements to their property.

The government said it would conduct further talks with stakeholders and provide an update on the reforms during Reeves’ 2025 Budget speech on 26 November.

“Our economy isn’t broken, but it does feel stuck,” Reeves said in a statement announcing the interim report. “That’s why growth is our number one mission … Tax reforms such as tackling cliff edges in business rates and making reliefs fairer are vital to driving growth.”

The British Chambers of Commerce (BCC) welcomed the Treasury’s move to reform business rates and reduce the SBRR cliff edge for small businesses. However, it said bolder changes were needed.

“The reality remains that these are tweaks around the edges of a business rates system that is still fundamentally flawed,” Jonny Haseldine, head of business environment policy at the BCC, said in a statement.

“It causes an unnecessarily large burden on businesses regardless of their ability to pay and does not make allowances for the significant structural changes that have taken place in the UK economy over the last decade.”

Louise Hellem, chief economist at the Confederation of British Industry, said the plan is a significant step forward in the “long-awaited” reform of the country’s business rates system.

“The government is right to prioritise tackling cliff edges, which have long acted as a brake on investment and growth across the economy,” Hellem said in a statement.