Thousands of small businesses could face unexpected rent increases of 10-20% as the Valuation Office Agency quietly reclassifies serviced offices across the UK, threatening to eliminate Small Business Rates Relief for firms that share workspace.
When we speak to small businesses, most tell us they are unaware that any of this is happening. Our concern is that this could become a de facto policy without the very businesses it affects being informed. We are therefore surveying small businesses to understand their awareness of the issue and the likely impact these changes could have.
A quiet change in business rates, but with major consequences
A major shift in business rates policy is quietly unfolding across the serviced office and flexible workspace sector. While early reporting has focused on the risk to workspace operators, the real impact is likely to fall on the small businesses that depend on shared offices for affordable, flexible space.
At the centre of the issue is a straightforward question: Should a small business renting a single office in a shared building still receive Small Business Rates Relief (SBRR)?
Historically, the answer has been yes.
Individual offices inside a serviced building have been assessed as separate rateable units. Because these units typically have a low rateable value, small and micro-businesses qualified for full or partial SBRR. This system supported genuinely small firms that are not yet ready for a long commercial lease or major upfront costs.
The VOA reclassification challenge facing flexible workspaces
Following recent case law, including Prosser (VOA) 2024 and Cardtronics v Sykes, the Valuation Office Agency (VOA) has begun reclassifying some serviced offices and flexible workspaces as "single hereditaments". In practice, this means treating an entire building as one rateable unit rather than many small ones.
When this happens, Small Business Rates Relief disappears immediately. Operators have reported sudden jumps in liability, and in some cases, retrospective business rates demands running into six figures. One provider in the Midlands has reportedly received a £400,000 backdated business rates bill.
The Federation of Small Businesses (FSB) has warned this creates a “shared workspace penalty”. A relief designed for small firms is effectively removed because they share a building with others.
A hidden business rates risk for small businesses
The industry’s position is set out clearly in an open letter from the Flexible Space Association (FlexSA), which warns that:
Many centres are now on the brink. Those that survive will have no choice but to pass these costs onto the small businesses that they host.
Most small businesses will not realise anything has changed for a while. Business rates sit behind their all-inclusive monthly fee, handled entirely by their provider. But if relief is withdrawn, the pressure builds quickly.
But once SBRR is withdrawn, the pressure builds quickly. A sustained 10 to 20 percent increase in business rates is impossible for operators to absorb. When those costs filter through, they fall directly on the very firms SBRR was designed to support - small and micro-businesses that rely on flexible space precisely because they cannot shoulder the commitments of a traditional lease.
What sounds like a minor interpretive issue in valuation practice could end up functioning as a stealth tax on small businesses. Not because the law has changed, but because the VOA has chosen to reinterpret existing classifications in a way that removes the relief small firms have always relied on.
Uneven implementation and a growing communication gap
Across the country, the VOA’s actions appear piecemeal rather than policy-led. Individual operators are being challenged in isolation, generating substantial legal costs and leaving both providers and tenants without any clear guidance. The absence of a consistent framework has created uncertainty and made forward planning extremely difficult for the entire sector, especially when the VOA is claiming business rates retrospectively. Clearly, if this is done across the board, a huge number of providers would be forced into administration.
Small firms choose flexible offices because they lack the budget and time to take on a long lease. Removing SBRR from shared buildings would push them towards options that are more expensive, more complex and less flexible.
Why clarity and data are urgently needed
The decisions being made now could reshape the cost and availability of flexible workspace across the UK. But small businesses that will be most affected are also the least aware.
To bring clarity to this issue, we are gathering insight through a short, anonymous national survey for:
• small businesses using serviced or flexible offices, and
• workspace operators affected by reclassification.
