When the VOA Met the Taxman: Time to Rethink Business Rates?
On 1 May 2025, a quiet but significant announcement appeared on the Gov.uk website: the Valuation Office Agency (VOA) is to be absorbed into HMRC by April 2026. No fanfare. No consultation. Just a low-key press release with a few reassuring words that “customers won’t need to take any action.” Most people in the retail property world missed it – but we shouldn’t have.
Because while the civil service unions may be worried about job security, occupiers and property professionals should be asking a more pressing question: what happens when the last illusion of independence between property valuation and tax collection disappears?
The Disappearing Arm’s Length
The VOA is one of those peculiar UK institutions – a quasi-autonomous non-governmental organisation (quango), supposedly independent but very much a cog in the government machine. Its role? To assign ‘rateable values’ (RVs) to commercial properties – essentially an estimated rental value in a hypothetical open market – which then forms the basis of the dreaded business rates bill.
It also manages the mountain of appeals that inevitably follows. Not because businesses are unreasonable, but because the system itself is out of date and unjust.
So, what changes when this agency folds into HMRC? On the surface, it’s just a bit of governmental tidying-up – merging departments, streamlining back offices, trimming costs. The government says it will save 5 to 10% of VOA administrative spend by 2028–29 – around £4 million. But scratch a little deeper and the truth is more uncomfortable.
This isn’t reform. It’s consolidation. And they’re consolidating a system that is fundamentally broken.
Business Rates: Kafka Would Be Impressed
Let’s look at how business rates currently work. The VOA assigns a theoretical rental value to your building. Your local council applies a multiplier and sends you a bill. You disagree – of course you do – but you have to pay anyway while your appeal winds its way through a sluggish system. That can take years. And if you win, you get a refund. Eventually.
This isn’t a tax linked to profits, turnover or even real-world rent. It’s based on an arcane valuation method that bears no relation to how most businesses actually operate.
A struggling shop in London might pay ten times what a thriving one in Manchester does, simply because of where it is. The building, not the business, is taxed. It’s like saying someone should pay more income tax just because they live in Chelsea.
And now, all of this – the valuations, the appeals, the bills – will fall under the remit of HMRC. The same department that collects the tax will be responsible for setting the value on which it’s based. That’s not simplification. That’s erasing the thin veil of impartiality.
A Merger with No Reform
James Murray, Exchequer Secretary to the Treasury, says the merger will “reduce the hassle of the tax system.” But is HMRC really known for hassle-free service? Is anyone holding them up as a beacon of efficiency?
Let’s not forget, this announcement comes hot on the heels of another hit to large occupiers. The Chancellor recently proposed shifting even more of the tax burden onto properties with RVs over £500,000 – many of which are occupied by retailers – to subsidise cuts for smaller businesses. Yet again, the same businesses that already pay the lion’s share are being asked to pay more.
And for what? A £4 million saving?
To put it into context, the VOA helps collect around £60 billion a year in business rates and council tax. Its total cost is estimated at £40–80 million. So even a 10% saving barely scratches the surface. Wouldn’t scrapping the entire system be a more efficient way to cut costs?
A Radical Alternative
Let’s take the bold step. What if we abolished business rates entirely?
No more hypothetical valuations. No more appeals backlog. No more multiyear refunds. Just a clean break from a tax system built in a different era, for a different kind of economy.
Of course, the government would still need to raise that £60 billion. So the question becomes: how can we replace it in a fairer, more modern and administratively simpler way?
Tax the Business, Not the Building
The flaw at the heart of the business rates system is conceptual. It assumes a physical building is the best proxy for a business’s success and ability to pay. But in 2025, that no longer holds. Business has gone hybrid, digital, global. Some of the most profitable companies operate with minimal physical presence.
The tax system should reflect that. It should be based on the business, not the building.
We already have a tax mechanism that does this: VAT.
Could VAT Be the Answer?
VAT raises far more than business rates – £168 billion in 2023–24, compared to £60 billion for rates. Seventy-five percent of that came from businesses with turnover above £10 million. And many of those businesses are retailers.
So here’s a thought: instead of increasing the VAT rate (which would be politically toxic), could we slightly tweak the mechanics of the VAT system to fill the gap left by business rates?
One idea is to reduce the amount of VAT businesses can reclaim on inputs. At present, companies pay VAT to suppliers, charge VAT to customers and pay the net difference to HMRC. What if they could only reclaim 95% of input VAT? That 5% becomes a straightforward tax.
Let’s do the basic maths. If businesses subject to VAT had a combined turnover of around £840 billion, 5% of that is £42 billion. That’s already a significant chunk of the rates shortfall. And crucially, it would be collected through a system that already exists, without the need for thousands of valuations or appeals.
Yes, there would be winners and losers. And yes, it would still be a tax on business. But at least it would be based on actual business activity, not a theoretical property value.
Simpler, Fairer, Smarter?
This isn’t a fully-fledged proposal – it’s a conversation starter. But it’s surely worth discussing alternatives, because the current system is dragging us down.
The existence of business rates discourages investment, hampers innovation and places a disproportionate burden on high street retailers. The VOA’s merger into HMRC might tidy up the structure, but it doesn’t fix the fundamentals. It simply entrenches them.
This is an opportunity to do something better – not just cheaper.
What Next?
So, here’s the question: if we were building a commercial tax system from scratch, would we invent business rates? Would we dream up a world where your tax bill depends on someone’s guess at your building’s rental value?
Or would we design something simpler, fairer and more transparent – based on real-world business activity, not legacy assumptions?
Whatever your answer, don’t let this moment pass quietly. Share your views. Comment. Write to your MP. Or better yet, send your idea to the Chancellor. Because the buildings may stay the same, but business has changed. And it’s time the tax system caught up.
Tune in to the podcast episode on this topic on Apple, Spotify, and all your favourite podcast platforms. For more from Gary Marshall, go to www.thatretailpropertyguy.com
