Business rates will be permanently scrapped for properties with a rateable value of £15,000 or less from next April, chancellor George Osborne has announced in his 2016 Budget.
The current threshold for small business rate relief is £6,000. Osborne has also increased the higher rate relief threshold from £18,000 to £51,000.
As a result, 600,000 small firms will not pay the tax, saving them an average of nearly £6,000 per year. A further 250,000 businesses will see their rates cut.
Business rates will also be linked to the Consumer Price Index rather than the Retail Price Index from 2020.
Greater London will be given the power to retain 100% of the tax from April 2017, three years earlier than planned.
Under the current system, councils collect business rates and send them to Whitehall, which takes a cut and then redistributes the rest back. Plans to overhaul this system and allow councils to retain all of the money raised through the tax were announced last October. Greater Manchester and Liverpool are also piloting this approach.
The government said it will aim to introduce more frequent business rate revaluations (at least every three years) and will publish a discussion paper later this month outlining options on how to achieve this to support both business and the stability of local authority funding.
Businesses will also be able to receive and pay bills online by April 2017, with the longer-term aim of linking local authority business rate systems to HMRC digital tax accounts by 2022.
To fund the business rates reform, the chancellor has capped debt interest payments used by larger firms to cut their corporation tax bills to 30% of earnings.
The main rate of corporation tax, which has already been cut from 28% in 2010 to 20% - the lowest in the G20 - will be reduced further to 17% by 2020.
Cuts to corporation tax since 2010 will have saved businesses £15bn by 2021, Osborne said.
The chancellor has also announced measures to stop overseas retailers from storing goods in the UK and selling them online without paying VAT.
It comes after the government launched an investigation last December into VAT evasion by overseas third-party sellers on platforms such as Amazon and eBay.
UK retailers have complained they are being undercut by foreign companies, particularly from China, which sell their products through these etailers, but do not charge VAT.
Elsewhere in the speech, Osborne outlined a “roadmap” to crack down on multinational tax avoidance, raising £9bn for the economy.
He also revealed that the Office for Budget Responsibility has downgraded its forecast for GDP growth to 2% this year and 2.2% in 2017.
Although it does not have a stance on whether or not Britain should remain in or leave the European Union, the OBR warned a vote to leave could “usher in an extended period of uncertainty”, which could have negative implications for business and consumer confidence, Osborne said.