Small companies say they’ll hike costs if taxes are raised in Budget

Small businesses have warned that they are likely to increase prices in response to higher taxes and the impact of new workers’ rights legislation.

Chancellor Rachel Reeves will likely announce an increase to employer National Insurance contributions in the Autumn Budget this week.

Employers currently pay National Insurance of 13.8 per cent on a worker’s earnings above £175 a week, but this is expected to rise this week.

The Treasury will also lower the threshold for when employers start paying the tax, according to reports.

Experts have warned that a rise in employer contributions could reduce hiring, wages and pension contributions.

An NI increase for employers has been dubbed a ‘tax on jobs’ and could have a detrimental impact on business confidence, at the same time the Government is trying to make the UK an attractive place to invest.

A survey by Enterprise Nation found that almost half of small business leaders say a tax grab would hurt their business.

They say they may have to increase prices and put growth and hiring plans on hold to cope with potential tax rises.

The recent workers’ rights legislation is also worrying some small businesses, despite 69 per cent saying their staffing arrangements already meet statutory requirements or above.

The new rules will give employees protection against unfair dismissal and sick pay entitlement from day one. Those on zero-hours contracts will also gain guaranteed working hours should they want them.

Nearly two-thirds of businesses said day one unfair dismissal was a particular concern. Some 63 per cent said it would have an effect on hiring plans.

Additionally, the looming threat of the 75 per cent business rates relief not being extended from April, is adding to their woes, with 45 per cent fearing increased costs as a result.

Emma Jones, CBE, founder and CEO of Enterprise Nation, said: ‘In order to handle some of the financial impacts that are coming down the line for small businesses, many are going to need extra support.

‘Increased business costs associated with enhanced worker rights, for example could mean many will have no choice but to put up their prices to customers – or look to make efficiencies elsewhere. That could mean less investment in growth and less jobs.

‘Small businesses are resilient in the face of adversity, but they will need help to rethink their strategy in order to cope with an increased tax burden.’

Reeves will have her work cut out to inspire businesses after what is widely expected to be a gloomy Budget.

Business confidence fell to a four-month low in October, according to Lloyds Bank’s business barometer – significant drop from the nine-year high that it reached in July and August.

The survey was carried out before news of a potential increased in NICs, which means the Government could lose further support from businesses.

However, Lloyds said that 37 per cent of companies were looking to grow in the next year, with hiring intentions unchanged.

Elsewhere, there are concerns that a change to capital gains tax (CGT) rules including scrapping the asset disposal relief would impact exit plans.

Just under a fifth said they were worried about the effect on future investment, while 10 per cent said it could impact the valuation of their business.

We’ve made sacrifices to grow our business – it’s only fair to expect an ‘end game’ 

Elsie Rutterford and Dominika Minarovic recently secured investment for their skincare brand BYBI but are worried about the impact of changes to CGT.

Rutterford said: ‘It’s fair to expect to make money from the sale of your business that reflects the years of sacrifice and hard work you put into it.

‘Since we started the business both of us have become mothers and we’ve both had to give up so much to run and grow the business. That’s in addition to the years we ploughed our own money into it and took a meagre salary, while self-funding the growth.

‘We did this all in the spirit that there would at some point be an end game.

‘If this does go ahead it will have an impact on the number of people starting businesses and that will have an impact on the economy.’