We don't normally like to moan. However as a result of the impact of the UK Government's increased taxes on small businesses in 2025, as well as further increases scheduled to hit in April 2026, we were asked by the Times' business correspondent Helen Cahill to share our thoughts.
The conversation centred on the financial impact on our business and it was timely, as we've found the tax burden in January reaching crushing levels. And that's despite having had a very good January. Why have taxes risen so high? Mainly because the small business allowance for employers' NICs was fully used up between April and November, so the full burden of the new, much higher Employer NIC rate started hitting in December.
But also because the retail discount on business rates was reduced from 75% to 40% last year. Business rates are like council tax for businesses... they cover police and fire service and make a contribution towards the budget of the council in which the business operates. Business rates were first introduced nearly 20 years ago but were never intended to fall heavily on the shoulders of small businesses, particularly not high street-based businesses like single-establishment retail, leisure and hospitality businesses, to encourage them to open up shop.
A rent threshold was initially set at a rate that reflected the value of a lease on a small high street shop, £12,500, and any lease value at or below that rent did not pay rates. There was a small step-up, to about £15,000 in rent, which rates were added, with the full rate burden hitting above that level. You can imagine how rents have increased over the last 20 years, but this rates-free threshold has not increased at all. And as a result, the majority of small businesses on urban high streets have been dragged in rate-paying status.
Recognising that physical shops, particularly independent ones, were suffering unfair competition from online shops, delivery services and video streaming services, then Chancellor Philip Hammond introduced a 50% discount on rates for retail, leisure and hospitality (RLH) businesses to level the playing field. This was a lifeline to these industries in the years when Amazon was ascending.
When Covid hit and all shops and restaurants had to be closed, the then Chancellor Rishi Sunak increased the RLH discount to 100% to help those businesses pay their bills while their premises were closed. Landlords still required rent to be paid, requiring use of Covid loans to pay them, but the elimination of the rates bill was helpful in keeping businesses like ours carrying on throughout the various lockdowns, as well as subsequent restrictions on numbers of shoppers allowed in the shop, social distancing between staff, supply chain disruption, shipping problems and other Covid-related issues.
The retail discount was reduced to 75% when restrictions were lifted, recognising that trading conditions were tougher than ever. Online shopping and home delivery services rocketed during Covid, leaving many retail and hospitality businesses reeling. This concession on business rates gave the relief needed for many to adapt and survive.
In her first 2025 budget, Chancellor Rachel Reeves reduced the RLH discount to 40%, lower than it's ever been and with a very short phase-in period. It was a huge shock to anyone with a retail property, as it caused rates to double overnight. And in the subsequent budget announcement in late 2025, Reeves announced that the discount would be abolished and a different form of business rates adjustments for the RLH sector would be implemented. This new system, combined with a massive upward revaluation of retail properties by the valuation office, will come in to effect in April 2026 and increase most small independent retailers' rates bill substantially.
So in sum, higher employers NICs, higher business rates (going higher still in April), higher wage costs due to the rise in the minimum wage, Covid loan repayments which have another 5 years to run, required pension contributions for every employee no matter what size your business, and a 20% VAT rate together represent a heavy tax burden on small businesses at a time when the government expects growth. It's hard to make both objectives work... read the article for more insight here.