The Autumn Budget shows that SMEs are once again carrying the heaviest load. With the overall tax burden rising to record levels, cuts to capital allowances, new NIC charges on salary-sacrifice pensions and intensified HMRC enforcement, small businesses now face even higher operating costs just as demand softens.
As the government grapples with balancing fiscal responsibility and supporting economic growth, the Autumn Budget has now been delivered, marking an important moment for SMEs in the UK.
With business sentiment stagnating and confidence in government support diminishing, SMEs had been hoping for measures that meaningfully improved the environment in which they operate. Early reactions suggest that this has not been achieved.
The Chancellor has chosen to lean heavily on the tax system to stabilise the public finances.
The overall tax burden is set to rise to just over thirty-eight per cent of GDP within the forecast period, reaching an all-time high.
Much of this comes through personal taxation, with frozen thresholds continuing to pull more income into tax and National Insurance.
For SMEs, this shows up both in higher wage pressures, as employees seek to offset the drag on their take-home pay, and in softer demand, as households adjust to reduced disposable income.
Among the measures announced, two stand out as particularly significant for smaller businesses. The first is the decision to apply National Insurance to salary-sacrificed pension contributions. Many SMEs rely on these arrangements to improve overall reward packages without inflating headline salaries, and the removal of their NIC advantage raises employment costs at a time when margins are already thin. Employers now face the choice of absorbing the cost, reducing the generosity of schemes, or reshaping pay packages, none of which is straightforward when competition for talent remains tight.
The second is the reduction in corporation tax writing-down allowances. This effectively raises the tax cost of investing in plant, machinery and other qualifying assets. For capital-intensive SMEs, it increases the hurdle rate for investment and makes decisions about upgrading equipment, embracing automation or expanding capacity more difficult to justify on an after-tax basis.
There is some short-term relief through business rates reforms, which SMEs have long been advocating for. Retail, hospitality and leisure properties stand to benefit from lower multipliers, and a new transitional relief package will cap sharp rises following the 2026 revaluation. However, businesses in higher-value premises – particularly in London and the South East – are likely to face rising bills over the medium term once these temporary supports fall away.
Compliance measures also feature heavily. The government’s HMRC enforcement package aims to raise more than two billion pounds a year by the end of the forecast period, focusing on areas such as construction-industry fraud, non-compliant tax advisers and misuse of image rights. With small businesses now responsible for around sixty per cent of the overall tax gap, a significant share of this enforcement effort will be directed at them. For SMEs that already comply diligently, this could level the playing field, but it will still mean more scrutiny and greater administrative demands, placing a premium on maintaining immaculate records and ensuring VAT and CIS obligations are met.
The wider economic backdrop makes the picture more complicated. The OBR highlights a high cost of capital, a historically low real return on investment and subdued business-investment growth averaging less than one per cent a year between 2026 and 2030. Combined with rising taxes, this points to a more challenging environment for SMEs seeking to invest, scale or raise equity at acceptable valuations.
While SMEs continue to demonstrate resilience and a degree of optimism about their own prospects, they need the government to match that confidence with practical, targeted support. Higher taxes raise operating costs while simultaneously reducing consumers’ purchasing power, dampening demand for goods and services. For many small businesses, that double-squeeze is becoming increasingly hard to absorb.
It remains critical that the government finds ways to ease some of the pressures small firms face. National Insurance contributions and business rates remain particular pain points, cited consistently by SMEs as constraints on growth. There is a clear opportunity for the government to create a more growth-friendly environment by modernising the tax system and offering incentives that support innovation and investment. Owners who are already stretched thin need meaningful support rather than further uncertainty.
