Business Rates Explained: What They Are and How They Affect Startups

Business rates are a key expense for UK firms, yet many startups underestimate their impact. Understanding how these rates impact office costs enables founders to make more informed financial decisions, leading to significant savings and more strategic investment choices.

This guide builds your knowledge step by step. It first explains what business rates are and how to estimate them, before exploring why rateable value transparency is vital for early-stage companies.

Business rates should not be confused with business electricity rates, which refer to the energy tariffs used by companies for power consumption. Business rates, on the other hand, are a property tax applied to non-domestic premises.

What Are Business Rates?

Business rates are a tax on most non-domestic properties, including offices, shops, pubs, warehouses, and coworking spaces. They are the business equivalent of council tax and fund local services such as roads, policing, and waste collection.

Startups often underestimate their impact because all-inclusive serviced offices usually include business rates in their monthly costs. This lack of clarity can limit potential savings.

For example, a startup renting a 1,400 sq ft office in a central UK city with a rateable value of £41,000 would pay an annual business rate bill of about £20,459, based on the small business multiplier of 0.499. That’s roughly £1,705 per month—a significant cost for a young company.

By understanding business rates, founders can assess whether their workspace qualifies for Small Business Rate Relief (SBRR). Relief generally applies to properties below the government’s threshold. Requesting transparency helps determine whether a company is eligible and what steps are required to claim support.

How Business Rates Are Estimated

The City of London Corporation calculates business rates using this formula:

Rateable Value × Business Rate Multiplier = Annual Business Rate Bill

• Rateable Value: Set by the Valuation Office Agency (VOA), representing the estimated annual rent your property could command on the open market as of 1 April 2021.
• Business Rate Multiplier: Set annually by the government. For 2025/26, the multipliers are:
  • 0.499 for small businesses
  • 0.555 for other businesses

In the City of London, an additional charge supports local security, bringing rates to 0.519 for small businesses and 0.577 for others. The Greater London Authority (GLA) also applies a £0.02 supplement on properties with a rateable value above £75,000 to help fund Crossrail.

These figures indicate that business rate bills depend on the property type, size, and location.

The Impact of the 2023 Revaluation

Understanding how bills are estimated makes it easier to see how national revaluations shift costs across industries.

The 2023 revaluation produced clear winners and losers:

• Retailers and pubs saw their business rate bills fall by an average of 10–17%.
• Office properties experienced a 6.4% average increase, coinciding with the end of the Small Business Relief Scheme.

These shifts highlight why startups should check whether their workspace costs include business rates and how this affects overall affordability.

Are Business Rates Included in Coworking Spaces?

Many startups ask a common question: Are business rates included in coworking or serviced office fees?

In most cases, yes. Coworking and serviced office providers usually bundle business rates, utilities, maintenance, and cleaning into a single monthly membership fee. This approach simplifies budgeting and reduces administrative work.

By contrast, tenants in traditional leased offices pay business rates directly to the local council. In coworking or serviced spaces, however, the provider handles this payment on behalf of members. As a result, startups usually cannot claim SBRR directly, but it’s worth asking whether providers pass on relief through discounts or credits. Greater transparency helps small firms understand their actual workspace costs.

Understanding Workspace Costs as a Business Expense

For many startups, renting an office or coworking membership qualifies as a legitimate business expense. HMRC allows workspace costs if the property is used “wholly and exclusively” for business purposes. Founders can often offset workspace and meeting room costs against taxable profits.

Cost Comparison: Coworking vs Traditional Offices

Industry averages suggest:

• A small private office in a central UK city typically costs £500–£900 per desk per month, including business rates.
• A coworking membership typically ranges from £250 to £450 per month.

When factoring in utilities, maintenance, and flexibility, coworking can cut upfront costs by up to 50% compared with traditional leases.

Combined with tax benefits, coworking often becomes a strategic choice for startups, particularly those looking to explore new markets or expand their remote teams.

Fictional Example: GreenTech’s Move to Coworking

Take GreenTech Solutions, a fictional startup that switched from a traditional office to a coworking space in central London. The move reduced operational costs by approximately 40%, resulting in a monthly savings of roughly £2,500.

Understanding precisely what they were paying for gave them greater control and transparency. Those savings enabled GreenTech to hire two additional developers, thereby accelerating their product development cycle.

Towards Greater Transparency in Business Rates

Requesting transparency in business rates helps startups access new support and relief options. Engaging with workspace providers and policymakers can help promote more transparent and more consistent cost structures.

One practical idea is a “minimum viable transparency” pilot, where a provider voluntarily publishes rateable values for coworking spaces. This small experiment demonstrates how policy innovation can begin with incremental, achievable steps.

Ultimately, transparency benefits everyone. Clear rateable values enable startups to make informed, data-driven decisions about their workspace while maintaining the flexibility that coworking offers.

The Administrative Challenge of Transparency

While rate relief transparency is valuable, managing it can be a complex process. Providers must track usage across members, and local councils need reliable systems for distributing relief fairly.

Recognising this balance strengthens the argument for gradual reform. The goal isn’t disruption—it’s clarity and innovation. Even modest improvements, such as optional rateable value disclosure or startup-friendly tools, move the system forward.

Taking Action: How Startups Can Advocate for Fairer Business Rates

Business rates fund vital local services and form part of the UK’s economic foundation. Startups benefit when the system is both transparent and accessible.

You can take practical steps today:

• Request detailed cost breakdowns from your workspace provider.
• Engage with policymakers to promote fairer rate structures.

Proactive founders strengthen the startup ecosystem. With over 800,000 new UK businesses launched in 2024, collective advocacy for transparency will help drive innovation, efficiency, and fairness across the sector.

Find the Right Flexible Office for Your Business

Whether you need a coworking desk in Shoreditch or a private office in Canary Wharf, we can help you find startup-friendly office space that aligns with your budget and growth plans.

📞 Call 020 3838 2008 or browse office listings to get started today.

Sources

• Business Rates: Transparency and Disclosure of Information on Business Rates Valuations (2025)
• How to Calculate Business Rates & Claim Rates Relief in 2025 (2025)
• Business Rates: How Your Rates Are Calculated (VOA, 2021)
• How Your Bill Is Calculated (City of London, 2025)
• Paying for Crossrail: Business Rate Supplement (2025)
• EIM31660 – The General Rule for Employees: Expenses: Wholly and Exclusively (HMRC)
• Companies House Statistics (2025)