By Michael Steed, below, President of the Association of Accounting Technicians
Years of shifting governments and changing policies have made the tax and regulatory system complex and difficult to navigate. For SMEs already managing rising costs and falling consumer confidence, the next raft of changes in April will add another layer of financial and administrative pressure.
If the Labour government is serious about delivering economic growth, now is the time to provide the UK’s business community with the clarity and support it needs. That means clearer tax rules, simpler compliance, and access to better professional tax and financial guidance.
How tax changes are making compliance more complicated
From 6 April 2025, several significant changes announced in the Budget will take effect. They further complicate the UK’s already intricate system of reliefs, allowances, and exemptions for some businesses and not others. Understanding how these interconnect is crucial for business planning, particularly around employment costs and business operations.
Employer National Insurance Contributions (ENIC)
The recent changes to Employer National Insurance Contributions (ENIC) highlight how new tax rules often add complexity for small businesses decision making, rather than stimulating growth. In the past few weeks, major employers such as Sainsbury’s and Greggs have announced plans to reduce hiring in response to rising employment costs – an issue that extends far beyond large retailers.
From April, the rate of Employer NICs will rise from 13.8% to 15%. This means that businesses employing one or more people will need to pay NICs on their employees’ earnings above the secondary threshold, which is currently set at £9,100 per year and will fall to £5,000 per annum from April 2025. NICs represent a significant cost of employment and can directly affect hiring decisions.
Employment costs are further affected by mandatory wage increases. The National Living Wage will rise by 6.7% to £12.21 per hour. While this increase helps employees maintain living standards in line with rising costs (undoubtedly a good thing for the lower paid), it also raises payroll costs for employers, especially those with a large workforce.
However, it’s worth noting that the Government also introduced changes to tax reliefs that smaller businesses could be eligible for, where some of these larger businesses might not be.
Employment Allowance
While the ENIC increase affects all employers, the government also announced changes to Employment Allowance from 6 April – claiming that 865,000 fewer businesses will have to pay any national insurance and one million will pay the same or less as before.
The Employment Allowance (EA) will increase from £5,000 to £10,500 in April, enabling eligible small businesses to reduce their Employer NIC bill by up to £10,500 annually. However, specific eligibility criteria apply: it doesn’t apply to employers operating in the broadly-defined ‘public sector’ such as privately owned GP surgeries, or sole-director personal service companies whilst a husband and wife whose separate businesses are ‘significantly interdependent’ can only claim once. Businesses must also actively claim EA through payroll software or HMRC.
Business rates adjustments
Retail, hospitality, and leisure businesses currently benefit from a 75% business rates relief. This will decrease to 40% in the 2025-26 tax year, which could create significant financial pressure on businesses in these sectors, who are already struggling with structural changes to their business models.
What Policymakers Can Do to Support Small Businesses
Accountants have a vital role to play in helping small businesses navigate the complexities of tax and employment regulations. With frequent changes to the tax system, this is even more so.
Priority should be given to creating a more stable tax policy environment to better enable SMEs to plan and grow.
Should further changes be introduced, the aim should be to reduce the administrative burden. Policymakers need to prioritise clarity, accessibility, and fairness.
The Government has indicated that it will deliver a package of measures that will simplify the tax administration burden for small businesses in Spring 2025.
Addressing the following areas could empower business owners to focus on growth instead of compliance challenges:
- Consider SMEs: The Government should explore mandating a dedicated impact assessment on SMEs for any tax reform proposal. Any new changes in tax policy should legally require the Government and HMRC to properly assess and consider the resource and cost impact the change will have on small businesses.
- Give plain-language guidance: Tax rules should be communicated in straightforward terms, using practical examples to eliminate confusion. Clearer instructions on eligibility for reliefs, such as the Employment Allowance, would enable small businesses to take full advantage of available support.
- Streamline systems: New processes like Making Tax Digital (MTD) are inevitable, but must be as simple as possible to encourage adoption and minimise errors. Ensuring that digital tools are user-friendly and affordable would reduce administrative burdens for small businesses. The Government’s planned investment in HMRC’s digital infrastructure should focus on creating an MTD system to support businesses, rather than adding further complexity.
- Regulate the tax advice market: Requiring tax practitioners to be licensed would ensure small businesses are not led astray by unaffiliated tax practitioners providing substandard or harmful advice. Until this is done business owners need to remain vigilant and ensure they check their accountant’s credentials before committing to working with them.
- Invest in financial literacy and digital skills: Beyond tax reform, supporting small businesses also means investing in financial literacy and digital skills. Many business owners struggle with tax complexity simply because they lack access to clear, practical financial education. The upcoming Education and Skills Review is a key opportunity for policymakers to ensure financial and digital literacy is embedded into SME training initiatives. Embedding financial literacy in education and workplace training, alongside improving access to trusted, qualified tax advisors, would empower small businesses to navigate regulation with confidence.
By focusing on these areas, policymakers can move towards a tax system that reduces risks, fosters compliance, and allows small businesses to thrive.
While the ‘holy grail’ of wholescale tax simplification may feel a long way off, it’s never too late to start heading in the right direction. These are just some of the positive, practical ideas out there that can make substantial difference for SMEs.
In the meantime, take my advice: talk to your licenced accountant or tax adviser today. It’s their business to support SMEs cut through the complexities of our tax system, make you aware of the reliefs available, and help you focus on what’s most important: your business.
To find your local AAT licensed accountant or bookkeeper, head to https://www.aat.org.uk/find-an-accountant-or-bookkeeper
About the author: Michael Steed a tax specialist and lecturer, and serves as President of the Association of Accounting Technicians (AAT). Michael ran his own accountancy practice for more than 30 years, was most recently head of tax at BPP Professional Development, and serves as non-executive director for a number of organisations.
