Budget Signals a Tougher Road Ahead for Small Firms

By Liz Barclay – ex HMG’s Small Business Commissioner

The early release of Rachel Reeves’s Budget points to sweeping tax changes. For small and micro businesses, the impact could be profound and painful.

Before the Chancellor even reached the dispatch box today, the Office for Budget Responsibility appeared to spill the biggest secrets of the Budget. And while the headlines focus on fiscal “headroom” and political drama, small and micro business owners will be combing through every line asking one question: What does this mean for me? The truth is blunt. If the leaked measures are accurate, this Budget risks tightening the pressure on the UK’s smallest employers at a time when they are already stretched to breaking point.

Small businesses are the 99%: the shops, cafés, trades, care providers and self-employed freelancers who employ more than 16 million people. They can’t flee offshore. They can’t shift profits internationally. They feel every tax change directly, immediately, and personally. Several of the leaked measures will hit them hard.

First, freezing personal tax and employer National Insurance thresholds for three years from 2028. This might sound remote, but it’s a stealth tax that will pull more of the lowest-paid workers and their employers into higher tax burdens without any rise in real income. For small firms already facing crippling payroll costs, this freeze is effectively a guaranteed increase in their wage bill year after year.

Second, charging National Insurance on salary-sacrificed pension contributions. For many micro-businesses, salary sacrifice is one of the few ways they can offer competitive benefits without raising costs. Adding NI to these contributions removes one of the most affordable retention tools they have and further increases their payroll costs.

Third, higher taxes on dividends, property income and savings.  Most small business owners pay themselves partly through dividends because traditional salaries are unaffordable once NI, insurance, rental costs and compliance expenses are factored in. Raising dividend tax rates will hit these owners directly, many of whom already take home less than their lowest-paid staff. It’s hard to build resilience when every route to sustainable income is closed off.

Fourth, cutting the writing-down allowance on corporation tax. This reduces the tax relief small firms get when they invest in equipment: vans, tools, IT, and machinery. At a time when the government claims it wants to raise productivity; it is restricting one of the few incentives small firms rely on to modernise.

Fifth, staged fuel duty increases from 2026. For tradespeople, deliveries, mobile services, carers and rural businesses, fuel is not a luxury, it’s the cost of doing business. Even with a temporary freeze, future rises will hit the smallest firms hardest. They can’t swallow the cost, and their customers often can’t absorb higher prices.

Other tweaks. from charging EV mileage to reducing capital gains relief for employee ownership, may sound niche, but they chip away at the margins small firms depend on. One change alone might be manageable. Ten at once is something very different.

The message from these leaks is clear: this Budget is designed to plug a hole in public finances, but much of the heavy lifting falls on the shoulders of people with the least capacity to carry it.

And small businesses will feel it first.

The Chancellor talks about “headroom”. Small businesses talk about survival. They live in a world where one late payment can break them, not in spreadsheets where billions move with the stroke of a pen. If these measures go ahead, small business owners will need more support than ever:

• clear guidance,
• fairer payment terms,
• better access to skills,
• proportionate regulation,
• and urgent relief from spiralling employment costs.
• Without that, we risk choking off the very people who keep our local economies alive.

I launched http://www.business111.com  today in BETA, precisely because small businesses are exhausted by unclear rules, inconsistent advice and policy changes that hit them before they’ve even understood the last set. The site is free, plain English and designed to help micro and small firms navigate changes like today’s Budget.

But no website, no adviser, no accountant can make up for a tax framework that simply doesn’t recognise the reality of life at the smallest end of the economy.

Small businesses want to contribute. They want to hire, invest, train, innovate. They want to grow. But they need a fair chance, and increasingly, the gap between political ambition and small business reality is widening, not closing. If the Budget is as the leak suggests, the Chancellor must pair these tax rises with urgent, targeted support. Otherwise, the UK risks balancing the books at the expense of the very businesses that keep this country working.

And if that happens, the cost won’t be measured in billions or bond yields.

It will be measured in closed shopfronts, lost jobs and communities left without the services they rely on.

Small businesses are watching today and they deserve better.