The UK economy will soon be a full month into the fiscal plan that the Chancellor of the Exchequer, Rachel Reeves, announced in the Spring Statement on Wednesday 26 March 2025. In the course of those 30 days, the turmoil caused by US tariff policy has, predictably, diverted much media attention away from Reeves’ mini-budget. However, the effects of the Spring Statement will soon begin to be felt by small and medium-sized businesses (SMEs).
It is important for effective cash flow management and future planning, that SMEs consider both the opportunities that the budget offers, as well as the commercial limitations it presents. With that said, a prevailing theme of the Spring Statement is its liability to develop in the light of economic forces beyond the Chancellor’s control, meaning flexibility and contingency planning are also key for SMEs going forward.
What are the Key Aspects of the Spring Statement for SMEs?
The Spring Statement has made some significant changes that SMEs should be aware of. Here is everything you need to know.
Corporation Tax
Despite popular speculation that the Spring Statement may bring an increase to the rate of Corporation Tax, it remained frozen at 25%. This is positive news for the 2.1 million active limited companies in the UK that pay Corporation Tax.
However, this apparent sign of stability for limited SMEs is not necessarily a long-term one. Paul Johnson, Director of the Institute for Fiscal Studies, has warned in his review of the budget that tax rates remain “at the mercy of events”. Put simply, Corporation Tax is unlikely to remain at its current level in the long term. With the market uncertainty caused by tariff reform, Reeves’ rate of Corporation Tax could increase in the June spending review or the Autumn Budget. SMEs cannot, therefore, safely forecast their budgets with a completely fixed view of their tax rate at this stage. They should instead model scenarios in which their rate of Corporation Tax increases in June, or indeed come the Autumn Budget.
The Spring Statement also confirmed that reforms to Corporation Tax administration that were announced in the 2024 Autumn Budget will be published in Summer 2025, which should simplify tax declarations for SMEs. While this will have little bearing on the bottom line, the simplification of Corporation Tax declaration should save SMEs a good deal of time and frustration.
Employer National Insurance
The rate of Employer National Insurance has increased from 13.8% to 15%. This change took effect on Sunday 6 April 2025. The increase in employer contributions will have a more significant effect on the larger SMEs, particularly medium-sized businesses approaching the 250-employee threshold. For a business with 100 employees each earning £35,000, this 1.2 percentage point rise could add over £40,000 to annual payroll costs. Moreover, SMEs in the wholesale and manufacturing industries will feel the 1.2% increase disproportionately. These businesses typically operate with the tightest margins, and may need to consider slowing wage increases or explore automation options where feasible.
Business Rates
The government has pushed back on reforming business rates until the Autumn Statement for 2025, despite significant pressure from the hospitality and retail industries. There have been continued demands from pressure groups such as the Federation of Small Businesses to provide tax relief to high-street businesses. Despite this demand, the Spring Statement reduced the discount available under the Retail, Hospitality and Leisure Relief scheme for 2025/26, decreasing the discount from 75% to 40% as of 1 April 2025. This reduction will immediately affect the bottom line of high-street SMEs. Some businesses may need to reassess budgets, pause expansion plans, or reduce staff hours to offset the higher cost of premises.
New Funding for Green Innovation
The Spring Statement has committed £2 billion in new funding to support the development and deployment of green technologies, signalling a clear intention to drive the UK toward a low-carbon economy. This presents a valuable opportunity for SMEs, particularly in the construction and manufacturing sectors, which together account for over 20% of SME turnover nationwide.
For these businesses, embracing sustainable technologies, including energy-efficient machinery, renewable power systems, or low-emission building materials, could come with government grants and subsidies. While upfront costs can be a barrier, the extension of the Full Expensing scheme, which now runs until 2027, will mitigate the cash flow concerns of significant green investment.
Full Expensing
Since former Chancellor Jeremy Hunt announced the initiative in Spring 2023, businesses have had the option of deducting 100% of the cost of qualifying capital investments (like IT systems, plant, machinery, and tools) from their profits in the year they make the investment. This is a significant benefit to SMEs that are scaling up their businesses, as they are able to reduce their taxable profits in the short term. This option has been extended within the Spring Statement until 2027.
It is important to clarify that this benefit applies strictly to SMEs that pay Corporation Tax, therefore excluding partnerships and sole traders. Those businesses that qualify can take advantage of improved cash flow after large capital investments. As we have explored, Corporation Tax is currently frozen at 25%, inviting businesses to expand in the current economy.
Social Housing Funding
The government has addressed the UK housing crisis in the Spring Statement, committing £2 billion to fund social and affordable housing in 2026-27. This will be made available to the private sector via development grants, planning reform and £625 million in investment to boost existing training routes into construction. Although housing development contracts will continue to go primarily to larger, regional construction firms, there is nonetheless growth potential in this policy for SMEs. SMEs in plumbing, electrical, carpentry, roofing, landscaping and groundworks could benefit from new tenders and long-term contracts as these projects are pushed through in 2026-27. Likewise, SMEs operating in the supply chain such as suppliers of building materials, fixtures and fittings, insulation, heating systems, and IT infrastructure could see increased trade as these construction projects proliferate.
Construction Infrastructure
The Spring Statement also aims to support growth by investing £13bn into more capital infrastructure over the next five years. This involves launching a construction skills package to help train more than 60,000 skilled workers in the UK.
Conclusion
The Spring Statement, though conservative in its scope, has presented UK SMEs with important considerations about the nature and timing of their growth in 2025. With the maintenance of the current Corporation Tax rate and significant incentivisation of green investment, SMEs that are looking into sustainable investments should prioritise moving on them, as global economic uncertainty could force the Chancellor to increase rates and/or reduce green funding in the near future.
Furthermore, small and medium-sized business leaders will need to monitor the global trade picture. This wider global context will significantly influence not just the UK economy, but also the operations, costs, and supply chain dynamics of UK SMEs going forward into 2026-27.
