UK tax regime is constraining SME growth, CIMA survey finds

The UK tax system is increasingly weighing on smaller businesses, according to new survey findings from the Chartered Institute of Management Accountants (CIMA).

Its latest UK SME Report, based on a survey of members who work in or advise small and medium-sized enterprises (SMEs), indicates widespread concern about the current tax environment.

The CIMA reports that 80.4% of respondents view employer taxes as very or extremely challenging for their organisation.

Seven in ten say that taxation is acting as an obstacle to growth.

Almost half (47%) of the respondents highlight fiscal drag, driven by frozen tax thresholds, as a significant brake on expansion.

The report also highlighted that around 46% of SMEs are operating below optimal staffing levels.

A further 27.3% stated that they need additional employees but are reluctant to hire because of rising employment tax costs and labour market issues such as skills gaps and difficulties in retaining staff.

Of those surveyed, 64% describe the business outlook as bleak or difficult, and just over half (50.3%) anticipate growth over the next year.

In response, the CIMA is calling for targeted tax changes tailored to smaller companies.

Its recommendations include lowering employment-related tax burdens on SMEs, reassessing frozen thresholds and the impact of fiscal drag, streamlining tax administration and compliance, and enhancing HMRC’s speed and quality of support.

The institute is also urging policymakers to provide greater long-term policy certainty and address obstacles that discourage SMEs from hiring.

CIMA chief executive Andrew Harding said: “SMEs remain ambitious, but the domestic policy environment is limiting their ability to grow.

“With the tax year ending and against the backdrop of conflict in the Middle East, oil price shocks, inflationary pressures and growth flatlining – now is the moment for government to act and prioritise supporting SMEs with supportive tax policies and [a] framework for growth.”

Earlier this month, the CIMA said that the UK Government’s Spring Forecast fell short on rebuilding business confidence.