63% of SMEs say taxation is their biggest challenge – here’s what can be done about it

Data from the British Chambers of Commerce (BCC) paints a stark picture for SMEs across the UK. 

Following the UK government’s budget announcements in late 2024, 63% of SMEs interviewed by the BCC cited taxation as their primary business challenge – an increase from 48% of business owners who said the same in Q3 of 2024. 

What’s more, with business confidence slipping to its lowest level since 2022, many SMEs are, understandably, on the lookout for ways to mitigate rising costs while remaining competitive, and setting themselves up for long-term profitability. 

The impact on SMEs

One of the most significant blows to SMEs is likely to come from the rise in National Insurance Contributions (NICs), which is set to impact payroll costs and profitability.

Announced in the 2024 Autumn Budget, Chancellor Rachel Reeves decided the rate of employer NICs would increase from 13.8% to 15%, effective from April 6, 2025. In addition, she declared the threshold at which employers would start paying NICs was to be reduced. 

Businesses across all sectors are now preparing for these increases, with many already scaling back investment plans in anticipation. 

This could squeeze profit margins, delay investments, and force some businesses to raise prices. Additionally, the increased NICs could impact hiring decisions and create cash flow pressures, making it harder for SMEs to grow.

Beyond the NICs rise, some SMEs are feeling the strain in other areas. The BCC’s Quarterly Economic Survey (QES) for Q4 2024 revealed that only 32% of SMEs reported an increase in domestic sales across the quarter, down from 35% in Q3 2024.

Confidence in future turnover has also declined, with just 49% of businesses expecting growth over the next 12 months. It makes sense, therefore, that 55% of firms now think they will be compelled to increase their prices, up from 39% in Q3 2024.

But it’s not all doom and gloom.

What can be done

Despite these challenges, SMEs can take several steps to manage their tax burden and maintain financial resilience:

• Optimise tax efficiency: Businesses should ensure they are fully taking advantage of available tax reliefs and allowances. Working with a tax advisor could help identify savings and ensure compliance.

• Improve cash flow management: Cash flow management has always been crucial, but it's even more important now. Businesses should consider renegotiating supplier terms, streamlining invoicing processes, and closely monitoring expenses.

• Boost operational efficiency: Investment in technology and/or automation is something to think carefully about, but prudent investments can save money in both the short- and long-term. Reducing overheads and improving productivity can play a role in offsetting the impact of higher taxes, while also setting your business up for sustainable growth.

• Access government support: Accessing government support is another avenue to explore, with grants, subsidies, and support schemes designed to alleviate financial pressures. There’s no harm in searching for or asking about available options – taking advantage could provide much-needed relief during challenging times.

• Use the right financial tools: Consider whether products like business loans or credit cards could help manage cash flow, fund strategic investments, or cover short-term costs. Access to the right financial tools can support growth and improve flexibility during uncertain times.

• Plan for long-term resilience: Building financial reserves is obviously easier said than done, but it can be achieved. Having a solid financial cushion can help you weather short-term challenges while positioning your business for future growth.

Navigating choppy economic waters

The BCC’s report underscores the significant impact of rising taxes on SMEs, with many businesses now facing tough decisions about investment, pricing, and growth. 

By optimising tax strategies, improving operational efficiency, using the right financial tools, and accessing available support, SMEs can position themselves to face these challenges and — all being well — lay the groundwork for long-term success.