Tax incentives high on SMEs’ wish list for upcoming Budget

Ahead of a “painful” Budget expected this autumn, new research from independent SME funder Bibby Financial Services (BFS) reveals that UK SMEs consider tax incentives and access to finance as two critical areas that need to be addressed by the Government to unlock growth.

Data from BFS’s Q3 2024 SME Confidence Tracker, which surveyed 1,000 UK businesses, finds that SMEs have renewed confidence and appetite for growth, with 68 percent expecting sales to grow in the next six months – an uplift of 7 percent on the figures from its last survey in March 2024.

Business confidence has rebounded following the General Election, stabilising inflation and the recent interest rate decline, and this is set to drive an uplift in business investment. Over half of SME leaders (52%) say they are more likely to make major investments now that the election has taken place, and 63 percent say lower interest rates make them feel more confident about capital expenditure. 

However, amid speculation that capital gains and inheritance tax rises could be announced as part of the Autumn Budget, nine in ten (87%) SME leaders cite better tax incentives as a specific measure they’d like the new Government to implement. A further 81 percent want access to low interest financing for business expansion and job creation.

Derek Ryan, UK Managing Director at Bibby Financial Services, commented: “After a difficult four years, SMEs are finally feeling more confident to invest and grow.

“However, the Prime Minister’s warning of a “painful” Budget could undermine this confidence. That would be hugely disappointing, especially given the new Government’s election mandate included a plan for small business. The Prime Minister and the Chancellor must ensure that UK SMEs remain front and centre of the plan for economic growth.”

Access to finance remains an integral part of the growth puzzle. While data from trade body, UK Finance indicates commercial finance approvals increased in Q1 2024, the SME funding environment remains difficult to navigate. Indeed, half (49%) of SMEs believe the external finance landscape is complex and disjointed and 80 percent say they would like the Government to introduce better educational resources specifically targeted to smaller businesses. And with consumers able to use free online resources like Martin Lewis’ MoneySavingExpert platform to navigate financial decision-making, two in three (65%) SME leaders wish there was an equivalent resource for SMEs.

The Labour Party’s plan for business, published in June 2024 included ambitions to improve access to finance by reforming the British Business Bank and the Bank Referral Scheme – which helps guide SMEs rejected by high street sources to alternative funding sources. Research shows the current Bank Referral Scheme is underutilised, with just 18 percent of SMEs having used it, and a staggering one in three (33%) stating they are unaware of the scheme.

Derek Ryan continued: “The Government said it would support small businesses and the devil is in the detail. Access to finance continues to be a critical issue to address, and there are some clear areas to focus on. Firstly, it needs to provide educational resources tailored for SMEs, and importantly, it should make reviewing the Bank Referral Scheme a priority so it can deliver the economic value it was designed to generate. This should include input from a wider array of SME funders and commercial finance brokers – providing SMEs with greater agency over how they finance their businesses, to allow them to thrive and grow.”

Sandeep Dhillon, CEO of SME recruitment marketplace, Talmix, added: “Continuing economic uncertainty has seen cautious investors increasingly withdrawing funding from UK SMEs – notably in the tech sector. But SMEs play a key role in the Government’s ambitions for the UK to become a world leader in technology and innovation. So, to avoid a mass investment exodus, it’s more important than ever for the Chancellor in her upcoming Autumn Budget to provide much needed clarity. Investors and small businesses alike deserve fore-warning, transparency and support on potential business tax rises, such as Capital Gains Tax, and access to R&D credits.”