This week, the UK government's Spring Statement 2025 confirmed several significant changes first announced in the Autumn Budget that will impact startups and SMEs over the next few years.
With the UK government’s goal of stimulating economic growth, measures are set to increase operational costs for startups and SMEs - including higher National Insurance Contributions, reduced business rates relief and increased labour expenses due to the National Living Wage hike. Unsurprisingly, reactions from experts across the SME space are largely negative as a result.
This, coupled with a subdued economic growth forecast, mean proactive financial planning and strategic decision-making are more important than ever.
Here are 5 important takeaways:
1. Planned tax increases going ahead
Effective April 6 2025, employer National Insurance Contributions (NICs) will rise from 13.8% to 15% for salaries over £5,000. This change is expected to increase payroll expenses for small businesses and is likely to impact hiring decisions.
2. Reduction in business rates relief
The previously announced reduction in Business Rates Relief from 75% to 40% will proceed as planned from April 1 2025. Businesses should prepare for increased property-related expenses and explore potential avenues for financial mitigation.
3. National Living Wage increase
The National Living Wage (NLW) will increase to £12.21 per hour from April 2025. This 6.7% rise is projected to provide approximately three million workers with an annual pay increase of £1,400. While this enhances employee earnings, it also raises labour costs for employers.
4. Economic growth and consumer spending slows
The Office for Budget Responsibility (OBR) has revised the UK's economic growth forecast for 2025 downwards from 2% to 1%. This adjustment suggests a more challenging economic environment, prompting caution around investment and expansion in the UK, with more startup founders looking to thriving economies like Dubai.
Coupled with a forecasted slowing in consumer spending, as the OBR estimates real household disposable income will grow by just half a percent per year from 2024-2030 – down from a 2% increase in 2023. B2C businesses may need to address their customer retention and pricing strategies in line.
5. Planning reforms and housing initiatives
The government plans to deliver an additional 170,000 homes by 2029-30 through planning reforms aimed at streamlining processes. These initiatives are expected to stimulate growth in the construction and real estate sectors, presenting opportunities for businesses involved in these industries.
Be proactive and mitigate how these changes impact your business
With these changes confirmed, SMEs can no longer afford to sit back and wait for more favourable conditions. With the right guidance, you can build an informed and effective growth strategy to help you succeed faster and save money in the long run.
Here are some tried and tested strategies already employed by our customer base:
1. Explore outsourcing
With the changes to NIC and NLW, consider outsourcing as a strategic approach to manage increased operational costs. Outsourcing essential business functions, such as finance and accounting, can provide several benefits:
Reduce overheads by eliminating expenses associated with recruitment, employee benefits, and infrastructure.
Get access to specialised knowledge and skills that may be too costly to develop in-house.
Adjust the level of support needed based on your current needs, providing flexibility during periods of growth or contraction.
Delegating your financial management enables you to concentrate on strategic initiatives and core operations, removing the need for hires to fill gaps elsewhere and enhancing overall productivity.
Book a call with our Director, Matt to discuss how we deliver strategic support across your entire finance function for a fraction of the cost.
2. Hire specialised skills outside the UK
In-demand, skilled roles such as Software Engineering already come with a hefty price tag for SMEs – now increasing further through the introduction of increased NICs. Hiring expensive, senior team members full time from the UK will simply no longer be an option for many.
But many of the skills you need to drive your business forward can be delivered remotely. Especially in tech, we’re seeing more and more UK-based startups hiring for highly skilled positions from all over the globe.
Hiring flexibly outside of the UK offers founders:
Typical costs savings of 30-60% on salaries, with the same level of quality
No National Insurance to pay, saving you an additional 15% of additional cost on top of gross salaries
Access to top tier, senior level talent without the time or cost investment of hiring full time
Tip: Get access to highly-skilled developers at a fraction of the cost of an in-house hire with FiftyFive Technologies
3. Explore international company structures for tax efficiencies
Thinking globally has never been more important. In response to increasing financial pressures in the UK, more and more startups are setting up shop in countries like Dubai.
Even if you’re not looking to move outside of the UK, many of our clients are expanding into Dubai as a way to improve tax-efficiency and increase cashflow to invest in future projects such a product development, marketing or sales.
Having a company based in Dubai offers:
No corporation tax due for companies making up to £600,000
Reduced corporation tax rate of 9% beyond that, compared to 25% in the UK
100% profit repatriation when operating in a Free Zone
Access to additional markets across the Middle East
With colleagues already on the ground in Dubai, we are well placed to connect you with the right support to grow your business internationally. Book a call with our Director, Matt to discuss how we can help.
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