The UK’s SMEs (small and medium-sized enterprises) are expected to face challenges in 2025, including, £40bn of extra taxes on the economy potentially putting a brake on growth. The increase in capital gains tax leading to the selling of businesses and properties as more people look to give up on running companies or being landlords. Changes to National Insurance in 2025 will see employers have to incur additional costs for their workforce. Below we’ve summarised some of the biggest changes and challenges with practical solutions and ideas to keep your business growing throughout 2025.
The Top SME Business Challenges of 2025
December 17, 2024
SMEs Importance to the UK Economy
Firstly, we must talk about the importance of SMEs and what they do for the UK economy. An SME (small and medium-sized enterprise) is an organisation that has fewer than 249 registered employees and an annual turnover of less than €50 million. As we all know, SMEs play an important role in the UK’s economy. With an estimated 5.49 million SMEs in the UK (over 99% of the business population), they are core to the UK business landscape. SMEs help to create employment opportunities, economic growth and social development but still face constant challenges every year.
The Challenges that SMEs Face in 2025
Rising employment costs, inflation, evolving market dynamics and the 2024 election’s historic change in government are all set to play a part in challenging Great Britain’s SMEs in 2025. Let’s look at some of the key challenges and what SME owners can do to reduce stress and costs going into 2025.
UK businesses in 2025 will be tested across various sectors, despite insolvency rates being 12% lower year-on-year in November 2024 vs November 2023 this doesn’t necessarily indicate easing of economic pressures. Many businesses and sectors are still facing significant challenges particularly those in the construction with inflation, rising costs of materials and labour costs all on the up. Other pressures include:
Inflation and Energy Costs: Businesses continue to face rising operational costs. Despite some signs of easing inflation, the costs of energy remain high, putting further strain on the UK’s SMEs.
Geopolitical Instability: Ongoing global conflicts and trade disruptions are affecting supply chains, export markets, and resource availability for UK SMEs operating internationally. A Deloitte CFO survey highlights that most CFOs now see geopolitical instability as the greatest risk to their business.
Tax Burden and Fiscal Constraints: The UK government’s latest budget includes up to £40bn of additional taxes on the economy, introduced at a time when businesses and consumers are still recovering from inflation of the past few years. Higher taxes will undoubtedly slow growth, with businesses expected to pass on 60% of increased costs to workers and consumers.
Changes to National Insurance in 2025: National Insurance is set to rise from 13.8% to 15% in April 2025, with employers having to pay an additional £770 for each minimum wage worker or an extra £900 for a median wage worker, as you can imagine for businesses with larger workforces this can become costly.
Capital Gains Tax Impact: Changes to capital gains tax have resulted in early exits by some entrepreneurs and landlords, leading to reduced investment in SMEs and a loss of experienced leaders. The tax changes have sparked concerns about their impact on hiring, wage growth, and long-term business confidence.
Positives in the 2025 Outlook
It’s not all doom and gloom however, while SMEs will face headwinds going into, and throughout 2025, there are positive developments that provide opportunities for growth and relief:
Increased National Insurance Contributions (NICs) Revenue: Despite not being a direct benefit for SMEs, the government expects to generate around £25bn in revenue from increased NICs, this money is expected to be reinvested into public services and support for businesses.
Employment Allowance Boost: Speaking of government support for businesses, SMEs will benefit from the doubling of the Employment Allowance from £5,000 to £10,500 providing much-needed relief for companies with limited resources.
The International Monetary Fund: Rachel Reeves announced in her first budget that she would be receiving support from The International Monetary Fund (IMF) backing the government’s approach of balancing sustainable tax rises with fiscal responsibility. This strategy aims to stabilise the economy while promoting future growth.
Strategies for SMEs in 2025
While the challenges ahead are significant, UK SMEs have consistently demonstrated adaptability and resilience. As a business leader, adapting to new challenges is key to ensuring resilience and growth.
Here are some critical strategies for success:
Leverage AI and Technology for Efficiency and Growth
The adoption of Artificial Intelligence (AI) and advanced technologies such as CRM and sales tools is no longer optional but essential for SMEs aiming to remain competitive in 2025. AI-driven tools are designed to significantly improve productivity, reduce costs, and enhance customer experiences. With many SMEs now investing in AI technology, those that are slow to adapt may run the risk of falling behind versus competitors. Check out one of our most recent article where we put together 6 ways salespeople can harness AI to increase sales.
Focus on Financial Management
With rising costs, higher National Insurance Contributions (NICs), and increased taxes, SMEs must take proactive steps to manage their finances effectively and reduce costs where possible. Our advice for SMEs in 2025 is to not miss out on reducing NIC increases by implementing salary sacrifice arrangements where employees can redirect part of their salary into pension contributions. This strategy reduces employer NIC costs while boosting employees’ retirement savings.
Reassess Recruitment and Workforce Strategies
The current labour market presents challenges around recruitment costs, staff shortages, and wage pressures. SME owners might want to rethink their approach to recruitment, hiring an employee at the average UK salary of £27,600, may realistically cost you around £62,000 for their first year of employment. With this in mind, if you’re looking to hire a full-time salesperson a cheaper alternative could be to hire an outsourced sales team. This will reduce the time taken to train a new team member, give you access to specialised skills and work with a company that not only offers you cost-saving options but helps to grow your business too.
Drive Business Growth Through Strategic Sales Planning
In an increasingly unstable market, having a clear and robust sales strategy is essential for SMEs that are looking to sustain and drive growth. Strategic sales planning starts with a thorough evaluation of your current sales engine to identify areas of weakness, gaps and areas for improvements. This includes reviewing sales processes, assessing team performance, and ensuring alignment with the evolving market demands. For SMEs facing significant challenges in 2025, such as rising operating costs, labour shortages, and the impact of higher taxes, strengthening the sales engine will be crucial for maintaining revenue and remaining competitive.
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