More than 80% of UK small and medium-size enterprises (SMEs) cited employer taxes as very or extremely challenging for their organisation, according to CIMA’s latest UK SME Report.
Employment taxes top the list of respondents’ concerns. Seventy per cent said taxation is a barrier to growth, and 47% of respondents said fiscal drag — caused by frozen thresholds — is significantly restricting SME expansion.
CIMA surveyed 147 CIMA members working for or advising SMEs.
Nearly half (46%) of SMEs report being understaffed, and 27% said they need more employees but are hesitant to recruit due to rising employment taxes and wider labour-market pressures, such as skills shortages.
Most respondents held a pessimistic view of the current business environment: 64% said the outlook is bleak or challenging, and just more than half expect expansion in the next 12 months, a news release said.
“Taxes, and time spent sorting out tax administration, take resources away that could be invested in hiring people and fostering entrepreneurship and innovation. The current tax system is imbalanced, inefficient, and complicated,” Mike Osborne, managing director–Focus Business Group and chair–CIMA Members in Practice (UK and Ireland), said in the release. “This burden along with the increasing cost of employment is cumulative and taking its toll on small businesses that have limited financial buffers to absorb the pressures long term — creating a huge barrier to driving growth.”
CIMA urged the government to act on these priority areas, warning that, without targeted tax reform, SMEs will continue to struggle with cost pressures and uncertainty at a critical moment for the UK economy.
“SMEs remain ambitious, but the domestic policy environment is limiting their ability to grow,” Andrew Harding, FCMA, CGMA, chief executive–Management Accounting at the Association of International Certified Professional Accountants, said in the release. “With the tax year ending and against the backdrop of conflict in the Middle East, oil price shocks, inflationary pressures, and growth flatlining — now is the moment for government to act and prioritise supporting SMEs with supportive tax policies.”
In response to the findings, CIMA set out a series of priority policy actions to support SME resilience, productivity, and growth. These actions include:
- Reducing employment-related taxes on SMEs, addressing one of the most significant barriers to hiring and expansion.
- Reviewing fiscal drag and frozen thresholds, which are increasing the effective tax burden on SMEs year on year.
- Simplifying tax administration and compliance requirements, freeing up time and resources for SMEs to focus on growth.
- Improving HMRC responsiveness and support, particularly for SMEs navigating complex tax rules.
- Providing long-term policy certainty, giving SMEs a clearer multi-year tax, policy, and regulatory road map to plan investment.
- Reducing barriers to SME hiring, including tackling cumulative employment-related cost pressures.
— To comment on this article or to suggest an idea for another article, contact Steph Brown at Stephanie.Brown@aicpa-cima.com.