The National Enterprise Network (NEN) has raised serious concerns about emerging changes and interpretations within the business rates system that could significantly increase the tax burden on shared office and managed workspace providers across the UK, as set out in Chancellor Rachel Reeves’ stealth tax plans to punish small businesses to the tune of £600m.
The Network is warning that recent changes by the Valuation Office Agency (VOA) to how serviced and co-working office buildings are assessed for business rates could have significant unintended consequences for the sector. Under the revised approach, such buildings are generally treated as a single hereditament rather than multiple separately assessed units. This means individual occupiers are no longer able to access Small Business Rates Relief, with the higher overall rates liability falling on the workspace provider and ultimately being passed on to tenants through increased licence fees or service charges.
There is also concern that these changes could be backdated to 2023, creating unexpected and significant retrospective liabilities for workspace providers. For many not-for-profit organisations already operating on tight margins, this could result in substantial unplanned costs, placing severe strain on their financial sustainability and, in some cases, putting vital enterprise support services at risk.
At a time when enterprise support providers are already managing the loss of European Regional Development Fund (ERDF) programmes, the transition from UK Shared Prosperity Fund (UKSPF) allocations, and ongoing uncertainty linked to Local Government Reorganisation (LGR) and devolution, NEN says further financial pressure could have serious consequences for local economies.
Many managed workspace providers are not commercial landlords. They are community anchor organisations that reinvest income from affordable offices, workshops and co-working spaces into vital frontline services, including:
- Start-up advice and business mentoring
- Employment and skills programmes
- Support for disadvantaged and underrepresented groups
- Youth enterprise pathways
- Rural and coastal outreach services
- Affordable premises for microbusinesses and sole traders
Collectively, these organisations support thousands of individuals and businesses each year, forming a critical part of the UK’s business formation pipeline and contributing to local productivity, economic resilience and inclusive growth.
Alex Till, Chairman of the National Enterprise Network, said:
“Let us be clear: this is not about large commercial landlords. These changes risk penalising community-based organisations that reinvest every pound they generate into local jobs, enterprise and opportunity.
If Government is serious about growth, it must protect, not undermine the infrastructure that enables people to start and sustain businesses.
We believe these impacts may be unintended, but without urgent clarification, the consequences for the sector could be severe.”
For more than 40 years, not-for-profit enterprise centres and managed workspaces have supported people into self-employment, helped businesses to grow, and strengthened local economies. NEN warns that increasing the tax burden on these organisations at a time of reduced grant funding and rising operating costs is likely to lead to service reductions, site closures and fewer opportunities for aspiring entrepreneurs.
The greatest impact is expected to fall on:
- Individuals moving out of unemployment and into self-employment
- Low-income founders needing affordable first premises
- Women, older workers and underrepresented entrepreneurs
- Rural and coastal communities with limited access to support
- Town centres reliant on workspace footfall and enterprise activity
- Local economies dependent on microbusiness growth
NEN is calling on Government to urgently engage with the sector and take steps to ensure that business rates policy does not disproportionately impact not-for-profit workspace providers. Specifically, the Network is urging Government to:
- Clarify the treatment of managed workspaces within the business rates system
- Ensure that not-for-profit providers are not subject to disproportionate increases
- Work with the sector to develop a fair and sustainable approach
Without intervention, NEN warns that vital enterprise infrastructure could be lost.
“You cannot tax community enterprise infrastructure out of existence and then ask why growth has stalled,” added Alex Till.