The successive squeeze on UK Business Owners

As businesses continue to face further tax changes implemented by recent governments, it is safe to say they feel they are shouldering much of the current financial burden. Taken to the extreme, it could be argued that they are experiencing the Chinese practice of lingchi “death by a thousand cuts”: a slow, methodical process of inflicting many minor wounds until life ebbs away. Today, the phrase survives as a metaphor for decline by accumulation, where no single change is fatal, but the combined impact is devastating. For some UK business owners, this metaphor now feels all too real.

UK small and medium-sized enterprises (SME) are the backbone of the UK’s businesses, employment opportunities and productivity engine. They represent 99.9% of all UK private businesses¹, employing around 60% of the private-sector workforce² and contribute an estimated 28% of UK GDP³. However, over the past decade, a growing tide of tax changes, allowance freezes and relief reductions has put them under pressure.

Rather than being incentivised to thrive, innovate and pass on value to the next generation, they appear to be targeted to plug fiscal holes. This compounded effect over recent years is constraining business owners from growing a business, hiring staff, extracting profits, planning succession, and eventually selling or passing on a company, even in death. Across the lifecycle of running a business, all aspects are incurring increased cost, greater complexity and ultimately making it harder to benefit from all the inherent hard work and risk. Now more than ever, SME owners need trusted advisors to navigate this complexity and achieve their ambitions for their business and their future.

Productivity Down, Pressures Up

Productivity growth is the engine of wage growth, innovation and national prosperity, and the UK’s 16.9 million-strong SME workforce generates more than half of private sector turnover³ – therefore, it is central to the UK's engine. Fiscal policy ought to help maximise this potential, but as a result of the November 2025 budget, the Office for Budget Responsibility has downgraded the UK’s long-term productivity forecast.

The Cumulative Cuts - A business lifecycle in squeeze

Let’s walk through the typical SME owner’s journey and where the policy and tax cuts are hitting hardest.

1. Stage: Inception & Growth of a business

Growing the Business: National Insurance & Hidden Costs

• Employers’ National Insurance Contributions (NICs) remain a major cost for job creation. Firstly, NICs have increased significantly in the 2024 budget from 13.8% to 15%, and secondly, the level at which employers start to pay this cost has reduced from £9,100 to £5,000. The net effect of these two changes is a material increase in staff costs, which will impact employers’ desire to recruit staff to grow
• Fiscal drag – until 2021, UK income tax thresholds typically increased each year in line with inflation. With frozen tax thresholds now prevalent, employers will now find that their staff are dragged into higher tax bands as their pay increases
• Reduced tax efficiency – employers have been able to reduce NICs by utilising the pension salary sacrifice scheme, which allowed tax-free contributions from both the employer and individual. From April 2029, salary sacrifice contributions above £2,000 will no longer be exempt from National Insurance, which will undermine both savings incentives and staff benefits.

2. Stage: Lifetime of a business

Extracting Profits: Corporation Tax and & Dividend

• In April 2023, Corporation Tax for companies with profits over £250,000 jumped from 19% to 25% bringing an immediate and significant impact
• Dividend tax rates will increase by 2% from April 2026, further squeezing owner-directors who take income from business profits. For example, if you pay yourself £1,000 salary and £88,000 dividends, this change will increase dividend taxation by £1,754
• Threshold freezes for income tax and national insurance have dragged business owners (and indeed everyone) into higher tax bands, quietly eroding post-tax income. The income tax bands have been frozen since 2009. If they had increased by RPI, we would be able to earn approximately £17,451 per year before paying tax instead of the current £12,571 frozen allowance. This alone costs the average 20% taxpayer an additional £980 p.a.

3. Stage: Exiting a business

Selling or Exiting: Business Asset Disposal Relief (BADR) & CGT

• BADR, formerly Entrepreneurs’ Relief, once allowed owners to sell a business and pay just 10% CGT. This was an attractive incentive for those who created jobs, took risk, invested personal assets to grow a business and sell it for their future retirement. That rate has risen to 14% from April 2025 and will further rise to 18% in April 2026. A sale of a business for £1m will cost you £80,000 more in taxation post-April 2026 than it cost you pre-April 2024.
• Employee Ownership Trusts have been a very attractive exit strategy and still remain, however, they will no longer receive full exemption from Capital Gains Tax.
• These changes highlight the importance of good planning and not relying solely on a business sale for your retirement strategy.

4. Stage: Exiting unintentionally

Succession or Legacy: Inheritance Tax

• Previously, businesses were exempt from Inheritance Tax. With new changes to these rules, businesses now form part of your estate, potentially impacting family and generational businesses
• Previously, upon death, unlisted shares were exempt from Inheritance Tax; however, now they will be taxed at 50% of the normal Inheritance Tax rates.

Where Next?

SMEs are vital to economic health, driving job creation, investment, and GDP growth. However, recent global challenges - COVID-19, European conflicts, rising interest rates, inflation, and geopolitical tensions - have put significant pressure on UK business owners. This has led to tough decisions such as reducing hiring, delaying exits, cutting pension contributions, and revisiting succession plans. Many are also unaware of rapid changes in the tax landscape and their long-term impact.

Key message: Don’t panic - plan! SMEs have shown resilience, but future success depends on proactive financial and tax planning. Engage credible experts (accountants, consultants, solicitors, financial advisers) to navigate complexity and mitigate risks. Develop a comprehensive plan that aligns business and personal financial goals, anticipates tax changes, and leverages allowances and strategies before new rules take effect. With the right advice and foresight, building, growing, and selling a business is still achievable—just with sharper awareness and strategic decisions today.

Start the Conversation Now

If you're a business owner concerned about profit extraction, long-term planning, or will you have enough for the future you would like if you sell your business – we are here to help. At Wilcox Day, we work closely with business owners to protect what they've built and prepare for what’s next.

Book a call with one of our financial planners to take stock before the next cut comes.

You can find out more about our services here: https://www.wilcoxday.co.uk/specialist-advice/business-owners

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority.

Please note that advice with regard to exit strategy planning may involve the referral to a service that is separate and distinct to those offered by St. James's Place.

Footnotes:

1. Department for Business and Trade (DBT) — Business Population Estimates for the UK and regions 2025 (published 2 October 2025). https://www.gov.uk/government/statistics/business-population-estimates-2025/business-population-estimates-for-the-uk-and-regions-2025-statistical-release

2. DBT 2025 estimates: 16.9 million employed in SMEs (60% of total private-sector employment). https://www.gov.uk/government/statistics/business-population-estimates-2025/business-population-estimates-for-the-uk-and-regions-2025-statistical-release

3. ONS: Percentage contribution to UK economy by SME June 23 https://www.ons.gov.uk/businessindustryandtrade/business/activitysizeandlocation/
adhocs/1208percentagecontributiontoukeconomybysme

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