NDR fiscal drag quietly raising costs for Scottish businesses
New analysis from Scottish Chambers of Commerce shows Scotland’s business rates thresholds set by Scottish Government, which determine the applicable poundage rates for businesses (as well as their entitlement to some important reliefs), have barely moved since 2020/21 whilst, at the same time, many businesses have been notified that their rateable values will increase, taking them into a higher poundage rate banding.
In other areas of taxation, especially income tax, thresholds are a matter of regular debate – and challenge, but there appears to be no similar voice in relation to NDR thresholds which are used to calculate entitlement to reliefs and to determine which rate poundage applies to calculate NDR payments due by businesses.
SCC examined the basic, intermediate, and higher Non-Domestic Rate (NDR) thresholds, looking from fiscal year 2020/21 to December 2025. Over that five-year period, the upper threshold of the intermediate band increased once, from £95,000 to £100,000, representing a rise of 5.6%.
By comparison, over the same period, the retail price index has risen by almost 40%.
If thresholds had kept pace with inflation, the upper limit of the intermediate band would now be around £132,000. Instead, it remains at £100,000.
As a result, following the 2026 revaluation, more firms will be pushed into the higher rate band because their rateable value will rise, but the threshold will remain unchanged. This is fiscal drag.
The £32,000 gap is significant.
Thresholds determine which poundage rate applies and therefore what a business ultimately pays. This is made worse by the fact that, unlike income tax, NDR is not a marginal tax, meaning firms have to pay the new higher poundage rate on the full rateable value once they pass the threshold.
During the same period, businesses have faced rising wage costs, higher borrowing costs, energy volatility and supply chain disruption. Against that backdrop, a rates structure that tightens in real terms compounds existing cost pressures.
But the issue is not just one of which poundage rate applies.
Scottish Chambers of Commerce recently put a question about NDR thresholds to Scottish Government reflecting concerns that the failure to uplift thresholds might also be impacting many businesses by excluding them from existing reliefs available to them.
Across the retail, hospitality and leisure sectors, Scottish Government has confirmed that recently issued revaluation notices will take the proposed rateable values for 1,400 firms in those sectors from below £100,000 to a figure above that threshold.
That creates a potential triple penalty for these businesses, who from this April will no longer be entitled to reliefs and their NDR bills, based on higher rateable values, will be calculated at the higher rather than intermediate rate poundage.
Business rates form a part of wider operating costs, which influence investment decisions, recruitment, property choices and expansion plans.
SCC has consistently called for structural reform of the entire NDR system which is overly complex and burdensome.
A fairer approach to adjusting thresholds with adjustments linked to inflation, and not less frequently than upon the occasion of each revaluation, would be a relatively simple and fairer approach and be one which would align with other areas of the wider taxation system.
Doug Smith, Vice President of Scottish Chambers of Commerce and Chair of the Scottish Economic Advisory Group, said:
“Some businesses will face a higher rates bill next year because thresholds have remained broadly static for a number of years and they have already had notification that their RV is to rise to a level above £100,000.
This creates fiscal drag and is contributing to the wider cost pressures from which businesses across Scotland are suffering.
Changes to poundage rates proposed for 2026/27 will not offer much help to businesses who find they are now going to be on the wrong side of the £100,000 RV threshold.
The current intermediate rate poundage in 2025/26 is 55.4p and a business moving to the higher rate next fiscal year will pay 54.8p, a reduction of just 1.1%.
This will be of little comfort to the many businesses who have seen their proposed RV rise by a much greater percentage and may also now find that they are excluded from reliefs.”
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