Tax and other costs are clearly making growth plans harder for many UK small businesses, but the available surveys do not show that taxes and costs have stopped most firms from expanding. The strongest finding is that 61% of UK SME employers identified a combined tax-related category as a major obstacle to business success in 2024. That is a report of perceived difficulty, not a count of businesses that abandoned expansion. Separate questions show rising costs affecting planned hiring, investment, research and development, and new-product launches.
The useful distinction is between an obstacle a business feels and an expansion it can no longer undertake. Keeping those measures separate produces a more accurate picture and a more practical way to decide whether a proposed hire or investment is affordable.
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What the main UK employer survey actually measured
The Department for Business and Trade’s Longitudinal Small Business Survey 2024, published on 25 September 2025, covers UK businesses with 1 to 249 employees. It asked employers to identify “major obstacles to the success of the business.” The tax response combined taxation, VAT, PAYE, National Insurance and business rates in one category.
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Three-year movement in reported obstacles
| Major obstacle named by UK SME employers | 2022 | 2023 | 2024 | What the figures indicate |
|---|---|---|---|---|
| Taxation, VAT, PAYE, National Insurance and business rates | 41% | 45% | 61% | The combined tax category moved from third place in 2023 to first in 2024. |
| Energy prices | 60% | 56% | 50% | Still a substantial concern, but the reported share declined across the period. |
| Market competition | Not stated | Not stated | 40% | A separate commercial pressure, not a tax or energy measure. |
The tax result should not be read as a 61% failure rate. It means that 61% of employer SMEs selected the combined category as a major obstacle in the 2024 survey. The movement to the top of the list shows a change in reported concern, while the energy series shows that cost pressure is not one single phenomenon.
Which growth plans reported an effect from rising costs?
The same UK employer survey asked businesses that had growth-related activities planned whether rising costs had affected those plans. The denominator is businesses with the relevant plan, not all SME employers. Their answers were:
| Planned activity | Share reporting that rising costs affected the plan | How to interpret it |
|---|---|---|
| Recruiting staff | 45% | Among employers planning recruitment, nearly half said costs had an effect. |
| Capital investment | 44% | Among employers planning capital spending, costs affected the proposed investment for this share. |
| Investment in research and development | 40% | Among employers with R&D plans, two in five reported a cost effect. |
| Developing and launching new products or services | 38% | Among businesses with this type of plan, costs affected the plan for this share. |
“Affected” can include a change in timing, scale, financing or specification; it does not establish that the activity was cancelled. The survey does not estimate how many jobs, machines, laboratories or products were ultimately lost. It does show where cost pressure enters the growth process: decisions that require cash before they produce additional revenue.
Businesses without employees face a different denominator
The Department for Business and Trade also reported results for businesses with no employees. This is a separate population from employer SMEs and should not be blended into the employer series. Among non-employer businesses that had growth-related plans, 53% said rising costs had affected those plans in 2024. For affected businesses in that group, cost increases other than energy were the most significant issue.
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A sole proprietor delaying equipment or subcontractor spending is making a different decision from a 50-person employer considering a payroll expansion. The non-employer result is nevertheless useful: it indicates that cost effects are not confined to firms with a formal workforce. Always state both the population and the denominator when quoting either result.
“Cost pressure” includes more than tax
Tax obligations are prominent in the employer survey, but treating every expense as tax pressure hides the decisions owners actually face. The surveys separate several categories:
- Tax-related obligations: taxation, VAT, PAYE, National Insurance and business rates were combined in the employer survey’s obstacle question.
- Energy: electricity, gas and other energy prices were measured as their own obstacle and remained substantial even as the reported share fell over the three-year series.
- Operating costs: the UK Business Perceptions Survey 2024 found that 79% of businesses cited operational costs as a challenge. This item was newly added to that questionnaire, so it is not directly comparable with its 2022 results.
- Labour and other business expenses: wages, supplies, rent, finance and service costs can affect the same project without appearing in the combined tax category.
- Competition: 40% of UK SME employers named market competition as a major obstacle in 2024, which may limit the return expected from an expansion even when the cash is available.
The Business Perceptions Survey also recorded the level of tax as a challenge for 51% of businesses. Its question and population differ from the Longitudinal Small Business Survey, so the figures should be used as complementary indications rather than a single time series.
What US figures add—and what they cannot prove about the UK
The Federal Reserve Banks’ Small Business Credit Survey, published in 2025 from its 2024 survey, provides context from US employer firms. It found that 75% cited rising costs of goods, services or wages as a financial challenge; 56% cited paying operating expenses; and 51% cited uneven cash flow.
Those are US results, collected with different questions, samples and economic conditions. They should not be averaged with UK percentages or presented as a UK trend. Their value is narrower: they illustrate that cost inflation and cash-flow timing can constrain growth decisions across small-business economies, not that the same proportion of UK firms face each problem.
How to decide whether costs are really blocking your next expansion
Use the survey distinction—obstacle versus affected plan—inside your own business review. A project is at risk when its cash requirement, timing or expected return no longer fits the firm’s resources, not merely because one expense has increased.
1. Define the project and its decision date
- Write down the activity: a hire, equipment purchase, premises change, R&D programme or product launch.
- Set the date by which you must commit money and the date when the project is expected to generate cash.
- Separate one-off spending from recurring commitments such as wages, rent, software, maintenance or energy.
This prevents a temporary bill from being confused with a permanent increase in the cost base.
2. Build a cash-flow view before an accounting-profit view
- List expected receipts by month, using realistic payment dates rather than invoice dates.
- List tax, payroll, supplier, finance and energy payments in the months they leave the bank account.
- Add the proposed project’s deposits, staged payments and ongoing costs.
- Mark the lowest projected cash balance and the assumptions that would move it.
A project can look profitable over a year and still create a short-term cash gap. That gap is a financing and timing issue; it is not proof that the project is economically unviable.
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3. Test separate cost scenarios
Run at least three versions of the plan: the current estimate, a higher operating-cost case and a delayed-revenue case. Keep tax, energy, wages and other costs in separate lines so you can see which change is decisive. Do not assume that a reduction in one bill offsets a liability that falls due on a different date.
4. Recheck obligations attached to the decision
Before committing, confirm which tax, VAT, payroll, National Insurance and business-rate obligations apply to the transaction and when they are payable. A new employee, asset, premises or sales channel can change the timing and administration of obligations. If the treatment is unclear, obtain advice from a qualified accountant or the relevant tax authority rather than building a growth case on an unverified assumption.
5. Choose a response that matches the constraint
- Timing problem: phase the purchase, negotiate milestones or move the start date if the project’s economics remain sound.
- Scale problem: begin with a smaller pilot and define the evidence required before committing the next tranche.
- Margin problem: revisit pricing, supplier terms, energy use and product scope; cutting compliance activity is not a safe substitute for addressing margin.
- Financing problem: compare the total cost and repayment timing of funding with the project’s expected cash generation.
- Demand problem: validate customer demand before adding fixed costs. Competition can undermine an expansion even when tax and energy costs are stable.
Record keeping gives owners a clearer cost picture
In the 2024 UK survey, 65% of surveyed sole proprietors or partnerships liable for income-tax self-assessment said they used record-keeping software. The report also records spreadsheets and paper records as practices. That describes how businesses keep records; it does not show that one method lowers tax liability or solves structural cost pressure.
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- sales invoiced and cash received;
- supplier bills and the dates paid;
- payroll, tax and other statutory amounts set aside;
- energy and other variable operating costs;
- one-off investment spending; and
- the cash balance and committed future payments.
This record turns a general complaint about “rising costs” into a decision about a specific project, month and payment.
A practical checklist before pressing ahead
- Have you identified whether the pressure is tax, energy, wages, operating cost, finance or demand?
- Are you comparing cash payment dates, not only annual profit?
- Have you stated whether each cost is one-off, recurring, fixed or variable?
- Does the plan include the applicable tax, VAT, payroll, National Insurance and business-rate timing?
- Have you tested delayed sales or higher costs?
- What is the smallest version of the project that would produce useful evidence?
- What cash balance or sales result would trigger a pause?
- Are your records detailed enough to explain the decision to an accountant, lender or business partner?
The accurate answer to “are taxes and rising costs stopping most small businesses growing?”
The UK evidence supports a measured answer. Tax-related obligations were the most frequently named major obstacle among employer SMEs in 2024, and rising costs affected substantial shares of planned hiring, capital investment, R&D and product launches. Businesses without employees also commonly reported an effect on growth plans. But the surveys do not establish that most small businesses were prevented from expanding, nor that tax alone caused a particular expansion to fail.
For an owner, the useful next step is not to treat the headline percentage as a verdict on a proposed project. Identify the cost category, map its cash timing, verify the obligations and test the project’s scale and assumptions. That approach shows whether the constraint is temporary, manageable or fundamental to the economics of the expansion.
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