The Spring Statement 2025, scheduled for March 26, will introduce various financial and regulatory changes that are likely to affect small businesses. Funding Circle, a business finance provider, acknowledges that these changes could have significant implications on cash flow, hiring decisions, and long-term business planning.
In the months leading up to the Spring Statement, UK businesses have faced challenges, particularly after the Autumn Budget introduced plans for substantial tax increases, including a hike in Employer NIC set to take effect in April 2025. While the Chancellor is not expected to introduce any new tax changes during this Spring Statement, the consequences of last year’s fiscal decisions have already prompted sectors to make redundancies and reevaluate their hiring strategies for the upcoming financial year.
While we can’t expect much, if any relief in the coming announcement, businesses must revise their financial strategies to preserve profitability and innovation. Here’s what small business owners need to consider:
1. Increased Employment Costs
Employer National Insurance Contributions (NICs):
From 6 April 2025, Employer NICs will rise from 13.8% to 15% for salaries above £5,000, with the threshold for contributions decreasing from £9,100 to £5,000 annually. While this is still a week away, there may be announcements of relief in the coming budget, perhaps via an increased Employment Allowance or higher threshold before the Employer contribution becomes payable. If this tax increase remains the same, this change will continue to put pressure on businesses seeing an increase in payroll costs for small businesses, affecting hiring and wage structures.
National Living Wage (NLW) Increase:
In April, the NLW will rise to £12.21 per hour for workers aged 21 and over, putting additional pressure on businesses in sectors like retail, hospitality, and care. Business owners will need to review their budgets and consider ways to manage payroll expenses effectively. For many small businesses, this may mean reducing staff hours, increasing prices, or delaying potential growth plans to offset the added costs. Business owners will need to review budgets, explore efficiencies, and assess pricing strategies to ensure they can absorb the wage increase while remaining competitive and sustainable.
With UK economic growth projected at 2% for 2025 and inflation remaining above the Bank of England’s 2% target, businesses should prepare for ongoing financial challenges.
2. Taxation and Financial Planning
VAT Threshold Adjustments:
There is ongoing pressure for the Spring Budget to include an increase to the VAT registration threshold, which is currently set at £85,000. If implemented, this would be a positive development for small businesses, as it could delay or remove the obligation for many to register for VAT. For small businesses operating just below or slightly above the current limit, this could provide greater flexibility and support growth.
3. Sector-Specific Support & Economic Outlook
Business Rates Reform:
Potential business rate reforms in the upcoming Spring Statement could be a huge win for small businesses, particularly in the retail and hospitality sectors, where high property-based taxes have long been a financial strain. The autumn budget saw a reduction in the level of retail, hospitality and leisure business rates relief from 75% to 40%. A fairer system could mean lower rates, extended relief schemes, or a more flexible approach to taxation, helping small businesses free up cash for investment, hiring, or expansion. By easing these financial pressures, the reforms would create a more sustainable and competitive environment, allowing SMEs to focus on growth rather than being burdened by rising fixed costs.
Industry Tax Relief:
Business leaders are urging for tax relief for upskilling UK workers in 2025. If the Spring Statement includes further tax reliefs for training costs, digital transformation, and improved access to finance, it could provide critical support for SMEs looking to upskill their workforce, adopt new technologies, and scale their businesses. These measures would help small firms stay competitive, drive innovation, and expand their market presence, ultimately fostering long-term growth.
Navigating the Changes
Jerome Fernandez at Funding Circle comments: “The Spring Statement 2025 brings a series of financial shifts that small businesses will need to navigate carefully. With rising employment costs, potential tax adjustments, and ongoing economic uncertainty, it’s more important than ever for business owners to take a proactive approach to financial planning. While we welcome discussions around VAT threshold adjustments and business rate reform, the impact of increased national insurance contributions and the national living wage will put pressure on cash flow and hiring decisions.
At Funding Circle, we understand the challenges SMEs face and remain committed to helping them access the finance they need to win. Whether it’s managing payroll costs, investing in new opportunities, or strengthening financial resilience, businesses should explore all available funding options to stay competitive in this evolving landscape.”
With these updates, access to funding and strategic financial planning will be more important than ever. Small businesses could:
- Review cash flow projections to prepare for increased employment costs.
- Explore alternative funding options to manage tax liabilities and investment plans.
- Seek expert financial guidance to navigate VAT changes, capital allowances, and regulatory shifts.
