UK small businesses constrained by employer taxes, CIMA finds

High employer taxes are hindering the growth of 80% of small and medium-sized enterprises (SMEs) in the UK, according to new research from the Chartered Institute of Management Accountants (CIMA).

Analysis from the institute’s latest UK SME Report shows that 70% of businesses view current taxation as a primary barrier to expansion. Almost half of those surveyed cited fiscal drag, caused by frozen tax thresholds, as a significant restriction on their operations.

The findings, which were released in London yesterday (19 March), indicate that staffing levels are being impacted by these costs. Nearly 46% of SMEs reported being understaffed, while 27% said they are hesitant to recruit due to rising employment taxes and wider labour market pressures.

Business confidence remains low, with 64% of respondents describing the economic outlook as bleak or challenging. Only 50% of small firms expect to expand within the next 12 months.

In light of this, CIMA has called for targeted tax reform, including a reduction in employment-related taxes and a review of frozen thresholds. The institute also recommended simplifying tax administration to improve responsiveness from HMRC.

Mike Osborne, managing director of Focus Business Group and chair of CIMA members in practice, 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.”

Andrew Harding, chief executive of CIMA, added: “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 the government to act.”