Clearing up cloud-cuckoo land

Business rates have risen sharply up the political agenda in recent years, with proposals to reduce the burden on high-street businesses frequently dominating headlines. The 2026 revaluation marked a significant milestone, being the first under the UK's new three-yearly revaluation cycle to replace the previous five-year system. The change was to ensure that rateable values more accurately reflect current market conditions and economic realities. Yet with senior politicians continuing to float further structural reforms, the system remains far from settled. Already complex enough for those managing large and diverse property portfolios, understanding business rates liabilities can quickly become a real head-scratcher.

In 1995, in the Court of Appeal of Hong Kong (which at that time shared the UK’s Rating laws), the Hon Mr Justice Godfrey J.A., pronounced: “The world of rating appears, to one unfamiliar with the arcana, to be cloud-cuckoo land, a world of virtual unreality from which real cuckoos are excluded (although it seems that permission to land will be granted to a cuckoo flying in from the real world if it can demonstrate that its presence in cloud-cuckoo land is essential, not merely accidental).” [1] 

To many in the commercial property sector, business rates may still seem as esoteric and archaic a system as Godfrey J.A. so eloquently proclaimed it to be. But while the mechanics of the rating system may seem opaque, its impact is anything but theoretical. At a time when organisations are facing increasing pressure on both budgets and resources, business rates can represent a high and often overlooked cost.

For local authorities in particular, the importance of managing liabilities should not be underestimated. As a national tax, any unnecessary expenditure on their own operational estates represents money that could otherwise be directed towards frontline services. In many cases, the savings achieved by reducing the rates bill on council-owned properties can outweigh any reduction in retained business rates income. Understanding the fundamentals of the system, recognising the warning signs of an inaccurate valuation, and knowing how to challenge an assessment can therefore deliver meaningful and recurring savings at a time when every pound counts.

Efficiency, efficiency, efficiency

Although calls for reform of business rates have been steadily growing over the past couple of years, the government has been hesitant to act. The main reason behind this is simple – business rates are an incredibly efficient and effective form of taxation.

Recently released figures for 2025/26 highlight just how effective business rates are as a source of government revenue. Local authorities collected £27.8 billion, achieving a collection rate of 96.8%—higher even than council tax, which collected 95.6% of the amounts due, despite generating greater overall revenues of £42.9 billion.

The reason is simple: property taxes are difficult to avoid. Because business rates are tied directly to a physical property, authorities know exactly where the liable occupier is based, making enforcement far more straightforward than for many other taxes. This reliability makes business rates an especially valuable revenue stream, with collection rates comfortably exceeding those achieved for income tax, which is estimated at 93.6%.

Impressive impacts 

In addition to efficiency, rates can play an important role in improving local infrastructure, as revenue from rates is meant to be fed back into local projects and spent within the local area. Of course, there are some minor exceptions to this, notably the rates collected in the City of Westminster and City of London, which are so high that they are used in areas with lower receipts, too.

The change that can be funded by rates is both impressive and little talked about. A notable example of this is London’s Elizabeth Line, a great deal of which was funded by a business rate supplement collected from properties in central London, including both Westminster and the City.

Opportunities to save

Rates can be a significant burden on many businesses' budgets, so it’s important to understand how this financial impact can be mitigated as much as possible. Of course, that’s not to say it’s best to resort to the shady tactics some more unscrupulous landlords use – it’s definitely not best practice to keep boxes of snails in the office to claim agricultural exemptions! But even just a simple check that your rates are correct is well worth its time.

Local authorities should also be aware of significant legal developments affecting business rates mitigation strategies. The recent Court of Appeal judgment in City of London v 48th Street Holdings and Principled Offsite Logistics has substantially limited the use of arrangements where property owners pay third parties to occupy otherwise vacant premises in order to reduce or avoid business rates liability. The ruling is expected to restrict the scope for these forms of mitigation, reinforcing the need for councils to carefully assess the legal and financial implications of any rates-saving arrangements.

All the information on your property’s rates bill is available online on the government website. If you think this might be wrong, checking this is a prerequisite before any potential appeal. If you’re an occupier who has moved offices, then it’s also worth checking whether you’re still paying for your old office – you’d be surprised how many fail to check this and continue to pay direct debits as if nothing has changed, much to their former landlord’s delight.

The importance of choice 

For landlords like local authorities, a useful method to minimise rate liabilities is through the choice of tenants. Charities, for example, can benefit from 80% relief on their business rates when in tenancy. Crucially for landlords, however, properties that are designated as for charitable use are also exempt from rates when vacant – which can help local authorities to avoid paying extra taxes on properties they aren’t currently earning rents on. The same principle applies to qualifying Community Amateur Sports Clubs.

There is a similar provision for business rates relief that is generally tied to eligible occupied businesses, rather than vacant buildings, in Freeports and Investment Zones. The principle is governed by rewarding owners to bring vacant buildings back into productive use in designated tax sites.

Change on the horizon?

More fundamental reform of business rates has been discussed for years but rarely delivered. Reviews in 2014, 2020 and 2024 all set out ambitious visions for change, yet ultimately resulted in relatively modest adjustments to the existing system. Since then, further proposals have emerged, including fixing the multiplier and replacing the current ‘slab’ structure with a ‘slice’ system akin to income tax. While these ideas could alter how liabilities are calculated, they would leave the core principle largely unchanged.

The new Prime Minister has announced additional relief for pubs and live music venues to be funded by removal of relief from anti-social businesses including Vape shops. With the party conference and Autumn Budget on the horizon, these could provide opportunities for announcements of further changes.

In the immediate term, ensuring that business rate liabilities are accurate should be a priority. As some of the largest occupiers of commercial property, councils are increasingly turning to specialist rating surveyors to review assessments on offices, depots, leisure centres and other operational assets. Where inaccuracies are identified, successful appeals can deliver immediate and recurring savings at critical times of financial constraint for local government.

For more information on business rates, or any advice and support on related issues, please contact Hartnell Taylor Cook via its London office on 020 7491 7323, or visit www.htc.uk.com.

Founded in 1922, Hartnell Taylor Cook LLP is a leading independent commercial property consultancy, managing over £2.5bn of property across the UK. Working on behalf of a diverse and extensive client base that includes government agencies, local authorities, blue light organisations, NHS, occupiers, investors, high net worth individuals, family offices and developers, the firm advises a breadth of national clients including Marks and Spencer Plc, Tesco, ATS Euromaster and The Maritime and Coastguard Agency.

^[1] China Light & Power Co Ltd v Commissioner of Rating and Valuation [1995] 2 HKC 42