Rising taxes and operating costs forced more than one in five UK small and medium-sized enterprises (SMEs) to make redundancies last year, underlining the growing strain on business owners as financial pressures mount.
A survey commissioned by Rathbones, one of the UK’s largest wealth and asset management groups, found that 21 per cent of SME leaders reduced staff in response to higher costs and tax burdens. The poll of over 1,000 founders, owners, and senior executives paints a picture of businesses being squeezed at both the corporate and personal level.
Rising costs were cited as the biggest threat to business by 70 per cent of respondents, while 58 per cent identified rising taxation and regulatory burdens among their most significant challenges. Business rates and employer national insurance contributions were singled out as particular pressure points.
The survey also highlighted how closely business and personal finances are intertwined for many entrepreneurs. More than a quarter of SME leaders said over 25 per cent of their personal wealth is tied up in their business, meaning higher operating costs are increasingly spilling over into household finances.
This strain is compounded by a rising personal tax burden. Frozen income tax thresholds continue to push business owners into higher tax bands, while cuts to capital gains and dividend allowances, along with increased CGT and dividend tax rates, are reducing post-tax income. For many SME owners who extract profits via dividends, these changes are forcing a reassessment of long-standing financial strategies.
Faye Church, senior financial planning director at Rathbones, said entrepreneurs were facing a “double whammy”.
“We consistently hear from business owner clients that they are determined to grow, hire and contribute to the wider economy,” Church said. “But heightened tax pressures are increasingly stifling those ambitions. Entrepreneurs are being squeezed from both sides, higher taxes at the business level and rising personal tax bills, making it extremely difficult to plan, invest and build for the future.”
Some SMEs are adapting by reshaping their workforce. The research found that 9 per cent have increased their use of freelancers or contractors, while another 9 per cent have shifted toward more part-time or flexible roles to manage costs.
Confidence in government support remains low. Nearly two-thirds of SME leaders said they believe the government does not understand the needs of entrepreneurs, while more than half said targeted measures such as business rates relief or changes to employer national insurance contributions would directly support growth and investment.
The impact is particularly severe in hospitality. Over 35 per cent of hospitality SMEs reported making redundancies last year, well above the SME average, and 69 per cent said increased taxation or regulation is now one of their biggest challenges.
The findings come as pandemic-era business rates relief has been scaled back and is due to expire entirely in April. While ministers have announced additional support for pubs, hospitality groups warn that restaurants, hotels, and other venues risk being left out.
Church said, “Without action, the mounting tax and cost burden risks stifling the very growth, innovation, and local regeneration the UK economy urgently needs.”
