{"id":45503,"date":"2025-11-26T14:28:41","date_gmt":"2025-11-26T14:28:41","guid":{"rendered":"https:\/\/employmenthero.com\/uk\/?post_type=news&p=45503"},"modified":"2026-01-30T08:14:58","modified_gmt":"2026-01-30T08:14:58","slug":"budget-blindspot-sme-nic-tax","status":"publish","type":"news","link":"https:\/\/employmenthero.com\/uk\/news\/budget-blindspot-sme-nic-tax\/","title":{"rendered":"The Budget’s Blindspot: How Small Businesses Missed Out"},"content":{"rendered":"\n
\n
\n
\n
\n

With rising employment costs, tightening margins and growing compliance demands, many small businesses needed <\/strong>the Budget<\/strong><\/a> to deliver where last year\u2019s hadn\u2019t. <\/strong><\/p>\n\n\n\n

While the Chancellor outlined a broader ambition for stability and long-term growth, the practical support small employers were hoping for wasn\u2019t always easy to spot. <\/p>\n\n\n\n

Reacting to the Budget, David Bharier, Head of Research at the British Chambers of Commerce, says that while \u201cthe general sense so far is that the Chancellor’s managed away through this budget relatively well,\u201d concerns remain.<\/p>\n\n\n\n

\u201cThe key issue for businesses at the moment is not any single measure, it’s the cumulative burden. There’s going to be some digestion time leaders, particularly for smaller businesses to really work out how they move forward.\u201d<\/p>\n\n\n\n

Here are a few of the measures many small businesses were looking for \u2013 and where the Budget may still have fallen short.<\/p>\n\n\n\n

Employment Support<\/h2>\n\n\n\n

According to 91±¬ΑΟ data<\/a>, 86% of small businesses were concerned about the impact of Budget decisions, and 59% felt small firms weren\u2019t adequately considered in policy decisions. Now that the Budget has been delivered, it\u2019s clearer which of those fears were justified \u2013 and which weren\u2019t.<\/p>\n\n\n\n

Employer National Insurance contributions (NICs) and the Employment Allowance were widely expected to feature following last year\u2019s disruptive NIC hike and the increase in the Employment Allowance from \u00a35,000-\u00a310,000. Smaller employers had been hoping for adjustments to reduce the ripple effects of the 2024 Budget. Unfortunately, that relief wasn\u2019t delivered. Instead, the Chancellor pledged to maintain current NIC rates for another three years.<\/p>\n\n\n\n

For smaller employers, that likely means continuing to carry the full weight of higher staffing and payroll costs, forcing many to reassess budgets, hiring plans and the overall sustainability of their current workforce.<\/p>\n\n\n\n

David Bharier says:<\/p>\n\n\n\n

\u201cWe had the employer NIC rise last year, which is what’s driven down business sentiment. And now we’ve got more negative announcements in the pipeline for businesses. We hear stories from businesses saying that they’re holding off on investment and recruitment and might even be looking to downsize in some cases.\u201d<\/p>\n\n\n\n

Dividend Tax Rate Hike<\/h2>\n\n\n\n

Prior to the Budget, there\u2019d been speculation that dividend tax rates might be reviewed, particularly for business owners who take part of their income as dividends. The Chancellor confirmed a 2% rise, meaning small business owners who rely on dividends could face higher tax liabilities. It could also mean businesses may need to reassess how they structure pay, withdrawals and year-end planning.<\/p>\n\n\n\n

Statutory Pay<\/h2>\n\n\n\n

Statutory pay rates remain a key pressure. Commentators expected further increases to the National Living Wage and statutory leave payments, following rises confirmed earlier in the year. The Budget confirmed rises to the National Living Wage this week, rising 4.1% from \u00a312.21 an hour to \u00a312.71 an hour from April 2026. It means smaller employers will likely have to absorb more costs directly \u2013 putting them under even more pressure in terms of staffing, hiring and price costs. However, the scale of the impact will vary depending on each firm\u2019s pay structure, workforce mix and use of variable hours.<\/p>\n\n\n\n

Updates around payrolling benefits in kind (PBIK) were also closely watched. Beyond the announcement that mandatory payrolling won\u2019t begin until April 2027, the Budget didn\u2019t add further detail. The delayed timeline gives employers some time to prepare, but given 91±¬ΑΟ data shows last year\u2019s Budget materially affected small employers \u2013 with 72% saying it had an impact and 37% reporting a significant one, rising to 43% among firms with 150-499 employees \u2013 it still means operating under existing, often complex, reporting requirements.<\/p>\n\n\n\n

Salary Sacrifice Scheme<\/h2>\n\n\n\n

Salary sacrifice schemes<\/a> \u2013 a core part of how employers support pension saving and manage costs \u2013 were another area of speculation. Reports indicated the Government was considering a cap on pension salary sacrifice before full National Insurance is charged. The Chancellor did confirm those changes, meaning employers could face additional costs, potentially prompting reviews of pension contributions, benefits and workforce budgets when the changes take effect in April 2029.<\/p>\n\n\n\n

Kevin Fitzgerald, UK Managing Director for 91±¬ΑΟ explained this further, pointing out that \u201cthere is a longer-term risk to consider\u201d when it comes to \u201ccapping the amount people can contribute through salary sacrifice\u201d.<\/p>\n\n\n\n

He adds: \u201cThe result would mean people saving less into their pension at a time when people are already struggling to put enough away. This will be concerning to older employees who are already facing a tough landscape when it comes to the job market. We recently ran a survey which found that 65% of over 55s say things are getting worse for them and 58% wouldn\u2019t be confident of finding a job if they lost theirs.<\/p>\n\n\n\n

\u201cAny decision on salary sacrifice must take into account the realities in which this age group is living and working. For employers, it\u2019s another layer of complexity at a time when businesses need to be supported to drive the employment growth and productivity which ultimately leads to long-term revenue for the Government.\u201d<\/p>\n\n\n\n

Income Tax<\/h2>\n\n\n\n

Despite pledging not to last year, the Chancellor has put a three-year freeze on personal tax thresholds in addition to NICs. The move will impact individuals and businesses alike, with knock-on effects that will likely see payroll costs increase, wage increase pressures on businesses and potential knock-on effects for NICs. <\/p>\n\n\n\n

Reports leading up to the Budget suggested the Chancellor was weighing a 2p rise in income tax<\/a> alongside a 2p cut to employee National Insurance. The Chancellor has since backed away from the move. <\/p>\n\n\n\n

Compliance and Reporting Demands<\/h2>\n\n\n\n

Small businesses had hoped for simplification across compliance and reporting \u2013 from digital reporting to payroll alignment. The Budget didn\u2019t provide much clarity on that front, meaning businesses hoping to reduce their existing compliance loads will be left wanting.<\/p>\n\n\n\n

Business rate reform was another closely watched area. Industry groups had called for a more predictable system, with adjustments to thresholds or relief schemes that would help small companies. <\/p>\n\n\n\n

The statement revealed that retail, hospitality, and leisure sites will likely see gains from reduced multipliers and a new transitional relief scheme, which will limit steep increases after the 2026 revaluation. Still, firms operating from more expensive properties \u2013 especially in London and the South East \u2013 may see their costs climb over the longer term once these short-term measures are withdrawn.<\/p>\n\n\n\n

For Davinia McGann, founder of accounting company Dam Good Business and owner of a Peacehaven-based cafe called Le Petit Velo, what was announced signals some ongoing uncertainty.<\/p>\n\n\n\n

\u201cFor a lot of my clients with small bricks-and-mortar businesses, the to-ing and fro-ing is going to be quite difficult to plan around. Yes, some of the changes they were worried about aren\u2019t happening, but there\u2019s still a lot they now have to consider \u2013 and that could shift whether it\u2019s even worth having the business or not.\u201d<\/p>\n\n\n\n

Preparing for the Year Ahead<\/h2>\n\n\n\n

If staffing costs rise further, half of businesses say they\u2019d consider raising prices, one in three would delay hiring and a quarter would consider redundancies, according to our data.<\/p>\n\n\n\n

Afiya Titus, co-founder of Fineo AI and a member of the UK Small Business Growth Council, says that while small business owners like her \u201cunderstand the Government is in a very difficult position where funds need to be raised\u201d, navigating the changes will be difficult. <\/p>\n\n\n\n

\u201cFor those who hire workers, we’re not too sure what the reward is. The biggest issues that have come up are employment costs. We all truly believe that if you employ people, it should be at a rate that doesn’t leave them destitute.\u201d<\/p>\n\n\n\n

She adds:<\/p>\n\n\n\n

\u201cI have seen how businesses are supported in a country like Ireland in comparison to the UK. I\u2019m on the side of encouraging innovation and entrepreneurship and I have a sad sense that if struggles continue, any company that does very well in the UK is going to end up listing in America or moving their headquarters to Dublin. <\/p>\n\n\n\n

\u201cThe UK should be more competitive. I firmly believe that taxation makes for a fairer society when done correctly, but we can’t tax our way to growth. The risk-reward ratio is punishing the very employees who come to work for us. It\u2019s not because they’re greedy, it’s because they’re already on their knees.\u201d<\/p>\n\n\n\n

With the Budget now delivered, small business leaders can start planning and shoring up against potential pressures. For measures not expected until next year or 2027, they can also use the extra time to assess their needs.<\/p>\n\n\n\n

Helpful steps include:<\/p>\n\n\n\n