Flexible workspace operators say they are being pushed into an “impossible position”, as business rate reclassifications trap them between incorrect valuations or a “far worse” alternative.
The warning follows changes to business rate classifications for flexible workspaces begun late last year by the Valuation Office Agency’s (VOA), shifting full rates liability for whole buildings onto operators and removing small business rates relief for thousands of small firms that occupy them.
This prompted the Flexible Space Association (FlexSA) to express “urgent and deeply serious concern” over the changes.
The VOA has now written to MPs confirming that submitting a check challenge appeal (CCA) could lead to a review of how serviced office buildings are assessed. FlexSA said this has left many operators reluctant to challenge tax bills they believe to be incorrect ahead of the 31 March deadline for CCA submissions, for fear of prompting the VOA to reassess how they’re taxed.
One anonymous operator said: “I’ve seen a 40% increase in our rateable value. Normally we would challenge that straight away. But the advice we’ve received is that if we do, the VOA could take another look at the building and merge it into a single assessment.
“It leaves us in a completely impossible position. If they merge us, the financial impact would be far worse than the increase we’ve already been given.”
Another operator said: “We are effectively being asked to accept valuations we don’t think are correct because the alternative could destroy the economics of the centre.”
FlexSA executive director Jane Sartin said the organisation was in talks with Treasury ministers about the issue, but warned that the current situation leaves operators “trapped”.
She added: “The government should pause the reclassification of flexible workspace centres until the wider question of how these buildings should be assessed for business rates purposes has been properly resolved.”
Operators warned in November that the change would harm the sector and the UK economy. In a letter to chancellor Rachel Reeves, around 60 firms said they had no choice but to pass on the costs to their occupiers or risk closure.
FlexSA letter to MPs warns that this could trigger a wave of closures, reduce workspace availability and jeopardise national growth, stating: “High streets will hollow out. Growth will stall. Investment is drying up”.
Sartin added that evidence submitted to government suggested investment decisions were already affecting investment decisions across the sector. “Flexible workspaces are home to hundreds of thousands of small businesses across the UK,” she said. “These centres provide the flexible and affordable space that many start-ups rely on to grow.”
A Valuation Office Agency spokesperson said in November that the change was a result of “developments in case law”, which meant it had 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.”
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