Property tax changes put serviced offices at risk, operators warn Rachel Reeves

More than 60 major operators of serviced offices, business centers and co-working spaces have warned consultant Rachel Reeves that recent changes to the business rates system could force thousands of businesses to the brink and put jobs across the UK at risk.

In a letter seen by Business Matters, the group, which together hosts more than 27,000 businesses nationwide, expressed “urgent and very serious concern” about what they described as a quiet but dramatic shift in how the government calculates business rates for flexible working spaces.

At the heart of the dispute is a major change made by the Valuation Office Agency (VOA), which has begun treating flexible workspaces as individual properties for classification purposes rather than as individual units. The shift means operators and occupiers face much higher bills, and tenants can no longer claim key reliefs such as small business rate relief.

According to operators, the reclassification was introduced without consultation, and in some cases was applied retrospectively – with old invoices amounting to up to £400,000.

Jane Sartin, chief executive of the Flexible Space Association (FlexSA), said the change puts the future of many centers at risk: “This sudden reclassification has been introduced without consultation and is already putting the future of many workspaces at risk. More than 150,000 SMEs are losing the amenities they rely on. Many centers are now on the brink.”

It warned that those that survive may have to pass on cost increases directly to the small businesses they host – a move that could increase pressure on SMEs already facing rising taxes, inflation and energy costs.

The Voice of America has refused to provide guidance or clarity on its approach, adding to uncertainty in the sector at a time when demand for flexible workspace remains high, FlexSA said.

VOA said the change follows developments in case law, including Prosser v. Ricketts (2024), Cardtronics v. Sykes (2020), and Ludgate House v. Ricketts (2019). Operators argue that these provisions do not apply to serviced offices and accuse the agency of making sweeping policy changes through an evaluation exercise rather than legislation.

There are over 4,000 flexible workspace hubs across the UK, providing essential space for freelancers, start-ups and growing SMEs. Industry organizations warn that closures could reduce the availability of workplaces, undermine entrepreneurial activity and hollow out high streets already struggling to recover from pandemic-era disruption.

The National Enterprise Network, which represents local enterprise agencies, said the changes could “lead to widespread business failure”, adding that the sector was still recovering from the long-term effects of Covid.

Tim Attridge, head of UK ratings at CBRE, said the business rates system was outdated and ill-equipped for the modern workspace economy: “Rather than making changes to the methodology now, VOA should stop consolidating and backdating ratings until the basis for the rating has been established through proper litigation.”

A VOA spokeswoman told Business Matters that recent case law requires the agency to review how serviced offices are valued: “Developments in case law mean we have to review the way serviced offices are valued. Many may now need to be treated as a single property depending on their contractual arrangements.”

She added that VOA is communicating with industry representatives but must enforce the law based on individual cases.

Operators say the Chancellor must intervene to prevent widespread closures and protect the sector, which supports hundreds of thousands of small businesses across the country.