Small and medium‑sized enterprises are increasingly constrained by the UK’s tax environment – with implications for jobs, investment and economic growth.
According to the latest UK SME Report from The Chartered Institute of Management Accountants (CIMA), which polled members working for or advising SMEs:
- 80.4% cited employer taxes as very or extremely challenging for their organisation, hindering growth
- 70% say taxation is a barrier to growth
- 47% of respondents also say fiscal drag – caused by frozen thresholds – is significantly restricting SME expansion.
Employment taxes top the list of concerns, with nearly half (46%) of SMEs reporting they are understaffed and 27.3% saying they need more employees but are hesitant to recruit due to rising employment taxes and wider labour market pressures, such as skills shortages and staff retention challenges. Confidence remains fragile as 64% say the outlook is bleak or challenging, and only 50.3% expect expansion in the next 12 months.
“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. 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,” said Mike Osborne, Managing Director of Focus Business Group, and Chair of CIMA Members in Practice (MiPs) – UK and Ireland.
CIMA is calling for targeted tax reform including reducing employment taxes for SMEs, reviewing frozen thresholds, simplifying tax administration and improving HMRC responsiveness. It has set out a series of priority policy actions to support SME resilience, productivity and growth in response to these findings.
These 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 roadmap to plan investment.
- Reducing barriers to SME hiring, including tackling cumulative employment‑related cost pressures.
CIMA is urging the UK Government to urgently 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.
Andrew Harding, FCMA, CGMA, Chief Executive of CIMA said:
“SMEs remain ambitious, but the domestic policy environment is limiting their ability to grow. 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 and framework for growth.”
