How UK SMEs Can Thrive Amid Rising Business Taxes in 2025
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The UK economy has underperformed expectations since the October budget. Growth projections for 2025 are now well below 1%, and inflation is expected to peak at 3.7% during the latter half of the year. Despite these challenges, the government remains committed to its autumn budget, focusing on healthcare, defence, and economic stability.
Higher business taxes are adding pressure on struggling businesses, particularly SMEs, which are cutting investment and planning price hikes. While business leaders believe that the government’s long-term strategies for industry and infrastructure are necessary, they can prove to be devastating in the short term. Improving productivity with improved operational speed and quality will be crucial for businesses to stay competitive and resilient.
This article explores the challenges facing UK businesses as rising business taxes, soaring costs, and diminishing consumer spending impact profitability and sustainability. Learn how resilient businesses leverage flexible alternative funding strategies to maintain stable financial structures, support investments in efficiencies, and fuel growth.
Rising business taxes
The budget, presented in October 2024, represents the government’s strategy to address fiscal challenges, including higher borrowing costs and persistent inflation. Increases to several business taxes are a significant part of the government’s strategy to bolster long-term economic growth.
These increased business taxes include the following:
- Employer’s National Insurance Contributions (NICs):
- Increase in Rate: Effective April 6, 2025, the employer’s NIC rate will rise from 13.8% to 15%.
- Lowered Threshold: The earnings threshold at which employers begin paying NICs will decrease from £9,100 to £5,000 annually. Changes to these business taxes will significantly raise payroll costs for employers.
- Capital Gains Tax (CGT):
- Rate Increase: The CGT rate for higher-rate taxpayers will increase from 18% to 24%, and for basic-rate taxpayers, from 10% to 18%.
- Effective Date: These changes are effective immediately.
- Business Asset Disposal Relief:
- Rate Increase: The rate on these business taxes will rise from 10% to 14% for disposals made on or after April 6, 2025, and to 18% for disposals on or after April 6, 2026. This adjustment affects the taxation of gains from the sale of business assets.
The impact of these increasing business taxes has placed significant financial pressure on businesses, further straining sustainability and confidence. These pressures are further exacerbated by new and continuing challenges in 2025
Challenges facing UK business in 2025
Although the government has introduced policies to support SMEs, such as increased employment allowances, business rate reforms, and tax incentives for R&D and capital investments, much more is needed. A recent survey by the British Chambers of Commerce (BCC) found that over half of UK businesses intend to raise prices in the upcoming quarter. This pricing strategy is driven by rising financial pressures, including hikes in business taxes, wage commitments, and broader economic challenges.
These broader economic challenges facing businesses in 2025 include the following:
Economic uncertainty: Markets face uncertainty with key shifts expected in geopolitics, technology, climate action, and economics.
Persistent inflation: Rising inflation is expected to surpass earlier forecasts, with the Bank of England predicting a peak of 3.7%, putting additional strain on business costs.
Workforce issues: The UK faces a complex set of talent shortages and workforce issues, ranging from skill gaps in tech and healthcare to challenges related to retention, and workplace flexibility. While a significant portion of the workforce nears retirement, other employees face high levels of burnout, leading to increased turnover.
Technology integration: Advancements in technology offer tremendous potential for UK businesses but come with significant challenges. Companies must navigate skills shortages, high implementation costs, cultural resistance, cybersecurity threats, and the complexity of integrating new and old systems.
Regulations and compliance: Businesses are facing a complex and evolving regulatory landscape. Challenges to data protection, employment law, sustainability, corporate governance, and compliance with business taxes are driven by changes in regulations, evolving standards, and increased scrutiny.
As a result of these growing pressures and economic uncertainty, many companies are cutting back on investment in attempts to preserve strained financial resources.
A better approach to resilience and growth
Escalating costs, including rising business taxes, are undermining already weakened financial structures. The British Chambers of Commerce has called for immediate action to support struggling businesses. These demands urge for reforms in business rates, faster infrastructure investment, and improved trade deals, particularly with the European Union.
However, any action from the government in this regard will likely be delayed, if implemented at all. It is up to business leaders to drive enhanced productivity, optimise costs, and leverage tax reliefs if applicable. Efforts must be made to stabilise financial structures and increase access to working capital to afford investments in operational efficiencies that lead to improved productivity and profitability.
These issues require targeted strategies supported by stable yet flexible financial structures to build resilience and fuel growth in an uncertain economy.
Stable yet flexible financial structures
Companies that align with emerging consumer trends, invest in productivity improvements, and stay adaptable to changing economic conditions will be well-positioned for success in the coming year and beyond. Strong yet flexible financial structures are essential to support adaptability and enhance competitiveness.
Leading independent funders are experienced and effective in developing comprehensive funding solutions to strengthen financial structures. Streamlined qualification processes, minimal credit requirements and covenant-light funding agreements provide fast funding with minimal lender oversight to enhance flexibility.
One of the most effective funding strategies to accelerate cash flow and provide easy access to working capital is invoice financing.
Invoice financing – a flexible, non-debt solution
This financing option leverages the value of a company’s balance sheet to secure credit. It is an effective funding strategy that helps businesses manage cash flow by converting unpaid invoices into immediate working capital. Invoice financing allows companies to bridge the gap between delivering services and receiving payment without waiting for lengthy payment terms. By utilising invoice financing, businesses can access funds to pay suppliers, cover operational costs, and invest in growth opportunities. It provides a flexible, non-debt solution without giving up equity. Invoice financing helps maintain smooth operations and financial stability, making it an ideal tool for businesses looking to optimise cash flow and stay competitive.
Leading independent funders have extensive experience solving complex funding issues with flexible financing solutions. Their expertise in overcoming financial hurdles and navigating potential roadblocks is a valuable resource for undercapitalized businesses.
Conclusion
As growth expectations diminish, escalating costs driven by higher business taxes, rising wages, and persistent inflation increase pressures, especially for SMEs. To thrive in this difficult landscape, businesses must prioritise resilience through enhanced productivity, cost optimization, and the strategic use of financial solutions like invoice financing. Businesses can better navigate these economic pressures by maintaining flexible financial structures, investing in efficiencies, and adapting to evolving market conditions. The government’s long-term strategies will be crucial, but in the short term, it is up to businesses to leverage available resources and stay adaptable to ensure sustainable growth.
Contact us to consult with our financing experts. Discover how flexible financing options and access to expert advice can help overcome the additional burden of rising business taxes, strengthen financial structures, and enhance competitive advantages.
Key Takeaways
- The impact of ongoing inflation, the government’s new labour policies, and rising business taxes have dampened business confidence and further strained business sustainability.
- Companies that invest in productivity improvements and stay adaptable to changing economic conditions will be well-positioned for success in the coming year and beyond.
- Strong yet flexible financial structures are essential to support adaptability and enhance competitiveness.
- Leading independent funders’ expertise in overcoming financial hurdles, such as rising business taxes, is a valuable resource for undercapitalised businesses.
eCapital UK
eCapital Commercial Finance (eCapital) is a leading invoice financier providing funding facilities up to £4m to support the growth of SMEs through the provision of flexible working capital facilities. With five fully functional UK regional offices, its local teams are uniquely placed to respond promptly and purposefully to the cashflow needs of its clients. The business has grown significantly since its launch in 2001, providing over £12 billion of funding to businesses. It is majority owned by eCapital, a US based financial services business with interests in the USA and Canada.
