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Small businesses are concerned about the tax burden being at a two-year high ahead of tomorrow’s budget according to the Federation of Small Businesses.
The sentiment comes on top of small businesses suffering under soaring prices of fuel and utilities and the lack of staff that is at a five-year high.
The FSB’s latest quarterly Small Business Index revealed that many small businesses are losing confidence after the announcement of plans to increase national insurance contribution rates and speculation that the government plans to increase tax on employers, employees, sole traders and company directors in April that many believe will hamper the UK’s economic recovery.
The quarterly index stands at +16.4 in Q3 2021, down more than two points on its previous reading (+18.6). Close to two-thirds (62 per cent) of the nearly 1,400 small firms surveyed for the study do not expect their business performance to improve over the coming three months.
Treasury plans to increase class IV and employer NICs as well as dividend taxation by 1.25 percentage points in the spring will add to inflationary pressure, cause firms to put the brakes on hiring and discourage investment, the research finds.
A third of employers (33 per cent) say that they would be forced to increase prices due to the changes. They will also cut their own compensation (24 per cent), recruit less (17 per cent) and scale back investment (16 per cent).
Among company directors – who were excluded from the government’s income support programmes during lockdowns – four in 10 (42 per cent) say the tax changes would inhibit their ability to save for the future, further reducing the already small share that saves into a pension, whilst also causing them to increase their debt levels (9 per cent).
Four in 10 (41 per cent) sole traders say they will have to increase prices, with some (6 per cent) saying they’ll shut down their business permanently if the NICs hike goes ahead unchecked. More than one in 10 (11 per cent) say they will “reconsider being self-employed”.
The findings follow publication of the government’s own business population estimates earlier this month, which show that almost 400,000 non-employing small businesses have been lost since the start of 2020.
“Small businesses right across the UK are hoping this Budget reflects the Government’s aspiration to create a low-tax, high-productivity economy,” said FSB national chairman Mike Cherry.
“As things stand, its planned hike to NICs – which serve as a job tax – will see firms with even less room to manoeuvre when it comes to investment, recruitment and reskilling, whilst leaving many with no choice but to raise prices. The risk of stagflation is very real, but there is still time to act.
“Increasing the Employment Allowance from £4,000 to £5,000 could make a real difference to the prospects of small employers as we head into an uncertain winter.”
The Q3 SBI finds that 76 per cent of small businesses are facing rising operating costs – a figure which is up 36 percentage points on this time last year. The proportions citing utility bills and fuel costs as major barriers to growth have reached five and two-year highs respectively (12 per cent and 8 per cent).
Elsewhere, the share who says lack of access to the right staff is holding them back has surged 17 percentage points this quarter compared to the same period last year to four in 10 (38 per cent).
Close to a quarter of employers state that it is difficult to find individuals with the right skills in their area (23 per cent), and a similar proportion (21 per cent) says hiring is a struggle because they require individuals with niche skill sets.
One in 10 (10 per cent) say that “the domestic labour market is limited because UK citizens are not willing to do the work in my particular sector”. A similar proportion (10 per cent) agree that “there are fewer EU applicants since Covid and Brexit.”
“On every front – from inputs, to energy, to recruitment, to shipping, to tax – small businesses are up against it,” Mr Cherry said.
“With energy costs sky-high, reducing VAT on utility bills for the smallest businesses would provide a measure of breathing space for those really struggling.
“This Government’s manifesto pledges to drive down costs and support small businesses by cutting the burden of business rates, increasing the Employment Allowance, bringing more of them into the procurement fold and ending our late payment crisis.
“With small business confidence dropping just at the point when they should be bullish about recovery, this Budget is the Chancellor’s opportunity to deliver.”