Tax Costs Now Biggest Concern for UK SMEs: Experts Explain
Tax-related costs have overtaken energy prices as the biggest obstacle to UK small businesses, according to an August 2026 SME report. A new study released by experts at British Business Funding broke down the key costs that create the most barriers for small business employers.
- The taxation issues, including VAT and National Insurance, are now cited by 61% of SMEs as a business obstacle.
- The second-biggest barrier for small businesses is energy costs, which half of the employers are worried about.
- Market competition still ranks among the most prominent obstacles for SMEs, but anxieties about it went down the most, with an 8% yearly decrease.
Here are three cost areas which experts highlighted:
Employment Costs Are Becoming Harder To Absorb
Employment costs are rising on multiple fronts at the same time, including National Insurance (from 13.8% to 15%), maximum employment allowance (rose to £10.5K), and the National Living Wage increase to £12.71. There are only a few ways in which SMEs can mitigate these new costs. Around 44% reported that they will increase their prices, and 23% have to consider reducing their worker numbers.
Energy And Fuel Remain Major Concerns
Energy and fuel costs are an issue for all small businesses, but especially for those operating vehicles, machinery or energy-intensive premises. In the summer of 2026, 73% of companies with over 10 employees described their anxieties regarding energy prices. The greatest concern about fuel is recorded in the transportation and storage industry (84%), followed by accommodations and food services (both at 82%).
Material Costs Are Rising Faster Than Selling Prices
Manufacturers are also facing a widening gap between the prices they pay and the prices they receive. Reports from May 2026 found that input prices paid by UK manufacturers increased by 8.7% over the previous year. Factory-gate selling prices increased by 4%. The largest annual increases included crude oil inputs (+71.8%), metal and non-metallic minerals (+6.8%), and chemicals (+5.6).
Expert Takeaway
John Carter, Managing Director of British Business Funding, commented:
“Small businesses are being squeezed from several directions at once. Employment costs, tax liabilities, energy, fuel and supplier prices all affect cash flow differently, but they often arrive before the additional revenue needed to cover them.”
“The concern is that otherwise healthy businesses may delay recruitment or investment because they do not have enough short-term flexibility. Businesses should review their costs early, assess what can realistically be passed on and consider their funding position before cash flow becomes urgent.”