If you’re running a small business in the UK right now, you don’t need a report to tell you things feel harder than they used to. The bills are higher, the paperwork is relentless, and every Budget seems to bring another challenge. You’re not imagining it, the numbers confirm what you’re experiencing daily.
But here’s what those headlines about doom and gloom often miss, amidst genuine pressures, there are also genuine opportunities. The businesses we work with who are thriving aren’t ignoring the difficulties, they’re navigating them strategically.
| £25bn Additional employer costs from NIC changes |
140% Average business rates rise for high street |
84% Of SMEs planning growth (5-year high) |
3.75% Base rate (lowest since 2022) |
The Cost Pressures Are Real and Sustained
You’re contending with a structural shift in operating costs that shows no sign of fully reversing. Here’s how the key cost drivers break down:
| Cost Area | Pre-Crisis / Previous | Current (2025/26) | Change |
|---|---|---|---|
| Typical annual electricity bill | £7,000–£8,000 | £13,264 | +75% |
| Employer NIC rate | 13.8% | 15% | +9% |
| Employer NIC threshold | £9,100 | £5,000 | -45% |
| National Living Wage (21+) | £11.44/hr | £12.21/hr | +7% |
| National Living Wage (18–20) | £8.60/hr | £10.00/hr | +16% |
| Business rates relief (R/H/L) | 75% | 40% | -46% |
Sources: British Business Bank, HMRC, HM Treasury. R/H/L = Retail, Hospitality & Leisure.
For an employee earning the average UK salary of £36,000, you now face an additional £937.80 annually in employer NIC. Multiply that across your workforce and the impact becomes significant. And don’t forget, the National Living Wage rises again in April 2026—up 4.1% to £12.71/hr for over-21s and a further 8.5% jump to £10.85/hr for 18–20 year olds. If you employ lower-paid staff, you’re facing a double hit of higher wages and higher employer NIC on those wages.
💼 Real-world example
One of our retail clients with 12 employees saw their annual employment costs increase by over £14,000 following the April 2025 changes—before accounting for any wage increases. With the National Living Wage rising again in April 2026, businesses with hourly-paid staff should budget for the combined impact now. We worked with them to restructure shift patterns and claim the increased Employment Allowance, reducing the net impact to around £6,000.
Hospitality Sector: The Sharp End of Cost Pressures
| Sector size vs pre-pandemic |
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| Share of UK job losses (Oct 24–Aug 25) |
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| Businesses cutting hours |
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| Businesses reducing staff |
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Source: UKHospitality Quarterly Tracker, Q3 2025
MTD and Regulatory Changes: Your Timeline
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) represents the most significant compliance shift in decades and it’s coming sooner than many realise.
| 6 April 2026 |
£50,000+ threshold Sole traders and landlords with gross income over £50k must comply |
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| 6 April 2027 |
£30,000+ threshold Threshold drops to capture more taxpayers |
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| 6 April 2028 |
£20,000+ threshold ~4 million taxpayers now in scope |
⚠️ Key deadline
The administrative reality: If you’re affected, you’ll move from 1 annual Self Assessment return to 6 submissions per year (4 quarterly updates + End of Period Statement + Final Declaration). HMRC estimates this will cost you around £320 in transition and £110/year ongoing.
Employment Rights Act 2025: Key Changes
| Change | Previous Rule | New Rule (2026–27) |
|---|---|---|
| Unfair dismissal protection | After 24 months | After 6 months |
| Statutory Sick Pay | From day 4 (3-day wait) | From day 1 |
| Parental/paternity leave | After qualifying period | From day 1 |
| Zero-hours contracts | No guaranteed hours required | Must offer guaranteed hours |
| Fire and rehire | Limited restrictions | Significant restrictions |
Estimated cost to UK businesses: ~£1 billion annually (DBT Impact Assessment)
These regulatory changes arrive alongside yet another above-inflation National Living Wage increase in April, compounding the cost pressure for employers already adjusting to higher NIC contributions. If you haven’t yet modelled the combined effect on your wage bill, now is the time.
Where the Genuine Opportunities Lie
Against this backdrop, several positive indicators warrant your attention—and action.
Employment Allowance: A Real Win
|
Previous Allowance £5,000 With £100k eligibility cap |
→ |
New Allowance (April 2025) £10,500 Eligibility cap removed |
This means approximately 865,000 employers will now pay zero employer NIC—fully offsetting the rate increase for many small businesses.
💼 Real-world example
A Norwich-based professional services firm with eight employees was facing a £7,200 annual increase in employer NIC. After reviewing their eligibility, we confirmed they qualified for the increased Employment Allowance, completely eliminating their employer NIC liability and turning what looked like a cost increase into a net saving compared to the previous year.
Sectors Showing Strong Growth (Annual %)
| Extended reality tech |
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| Green industries |
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| Contract catering |
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| Subscription services |
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Sources: Tech Nation, British Business Bank, Industry reports 2025
Key Positive Indicators at a Glance
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📉 Inflation: 3.4% |
🏦 Interest rates: 3.75% |
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💷 Start Up Loans: £500–£25,000 |
🏪 Business rates reform from April 2026 |
MTD Software Options
| Platform | Best For | Typical Cost | Key Features |
|---|---|---|---|
| Xero | Growing businesses, accountant collaboration | £15–£47/month | Bank feeds, invoicing, payroll add-on, strong app ecosystem |
| QuickBooks | Sole traders and small businesses | £12–£35/month | Real-time tax estimates, expense tracking, MTD VAT & ITSA ready |
| FreeAgent | Freelancers and micro-businesses | £14–£34/month (free with some NatWest/RBS accounts) | Tax timeline, automatic bank imports, simple interface |
| Sage | Established businesses, retail/inventory | £14–£33/month | Stock management, cashflow forecasting, payroll integration |
All platforms listed are HMRC-recognised and MTD-compatible. Standalone spreadsheets are not accepted by HMRC—your software must maintain a direct digital link to HMRC’s systems. A full list of compatible software is available at gov.uk.
💼 Real-world example
One of our landlord clients with three rental properties will move from submitting one tax return annually to managing quarterly digital submissions across all properties. We’re transitioning him to cloud software now, six months before the deadline to allow time for troubleshooting and familiarisation.
Often-Overlooked Tax Reliefs
| Relief | Benefit | Who Qualifies | Current Uptake |
|---|---|---|---|
| Patent Box | Effective 10% corporation tax rate | Profits from patented technology | Only ~1,600 companies claim (massively underused) |
| R&D Intensive Support | Up to 27% payable cash credits | Loss-making SMEs, 30%+ R&D spend | Growing awareness |
| Creative Industry Reliefs | 34%–53% tax credits | Film, TV, games, animation, theatre | Sector-specific |
| Full Expensing | 100% first-year deduction | Plant & machinery | Widely used |
✓ Action point
Director salary strategy: A salary at the Personal Allowance level (£12,570) remains tax-efficient, it avoids employee NIC while preserving your NI credits for state pension purposes. Above this, dividends are typically more efficient.
The Path Forward
UK small businesses face real headwinds. The 27% who expect to shrink or exit within a year are responding rationally to genuine pressures. Yet the 84% planning growth initiatives demonstrate remarkable resilience and adaptability. The truth lies in both statistics: some businesses will not survive this period, while others will emerge stronger.
The most valuable thing you can do now is combine clear-eyed assessment with practical action. Focus on the specific steps; Employment Allowance claims, MTD preparation, overlooked reliefs, cash flow forecasting, that provide genuine control in uncertain times.
The next two years will test UK small businesses severely. But they will also reward those who prepare systematically and adapt thoughtfully.
Have questions about how these changes affect your business?
Sources & Further Reading
Official Government Resources
- HMRC: Making Tax Digital for Income Tax — Requirements and deadlines
- GOV.UK: Employment Allowance — Eligibility and claiming
- British Business Bank: Start Up Loans — Application information
- HMRC: MTD-compatible software list
Industry Reports
- Federation of Small Businesses (FSB) Small Business Index, Q3 2025
- ICAEW Business Confidence Monitor, Q4 2024
- UKHospitality Quarterly Tracker, Q3 2025
- British Business Bank Small Business Finance Markets Report, 2025
