Posted: Thu 10th Feb 2022
The upcoming rise in National Insurance (NI) means more than one in four small and medium sized businesses in the UK fear they may not have all the funds required to pay their staff by April.
That's the finding of new research by ACCA UK and the Corporate Finance Network, which polled accounting professionals about their SME clients.
From 1 April, the government is introducing a controversial 1.25 percentage points increase to National Insurance and dividend tax for its new health and social care levy.
Several business groups have called for the change to be scrapped but prime minister Boris Johnson has said he intends to proceed with the rise.
The report said that the change to NI is just one of several pressures that SMEs are currently facing.
Surging inflation at 5.4%, interest rates rising from 0.25% to 0.5%, heightened supply chain issues, the energy crisis and access to finance are also "causing severe interruptions to business operations and SMEs' ability to survive or grow".
Many businesses are at "breaking point", the study warned, with accountants believing that more than one in five small businesses will run out of cash in the next 12 months.
The situation is particularly bad in Wales where 47% expect to run out of cash in the next year. Scottish small business owners are the most optimistic, with only 7% predicting they will run out of cash.
Mental health impact on small businesses
The economic and financial pressures are also taking a toll on founders' mental health and wellbeing.
Over a third of accountants said their SME clients are feeling more stressed and anxious than usual, a 15% increase from pre-Christmas levels.
Another 16% say they aren't sleeping and 6% feel unable to cope. Both figures have doubled in the last two months.
Wales recorded the highest levels of mental health impact at 45%.
Scotland recorded the lowest levels in comparison to the rest of the UK, but a fifth of Scottish business owners still feel more stressed and anxious than usual.
Appetite for growth hindered by access to finance
There was some positive news in the study with 38% of UK SMEs hopeful about business growth in the next six months. However, the report said the “aspirations are not matching up to the reality of SMEs' financial situation”.
Although there is an appetite for growth, 68% of SMEs were unaware of the finances available to them.
Claire Bennison, head of ACCA UK, said: "Our research reveals a very uncertain start to the new year for SMEs, countered with optimism about the long term for 2022. However, this essential progress can't be achieved without the cashflow and people to help them grow, or indeed the resilience to do this too.
"With more than one in four UK SMEs anticipated to struggle to meet payroll in April, the government needs to seriously consider the economic implications of the planned hike in National Insurance rates and the impact it will have on UK SMEs who serve as a backbone to the UK economy. Ultimately, these figures point to the danger of businesses failing."
Kirsty McGregor, founder of the Corporate Finance Network, added: "As our research suggests, the hike in National Insurance rates will leave already demoralised small business owners and sole traders in an extremely testing position. UK SMEs have already endured prolonged financial strain with 6% of UK SMEs expressing they are unable to cope.
"While SMEs remain hopeful and the findings demonstrate an appetite for future growth, the onus rests on the government to support SMEs, to provide them with the resources that they need, instead of placing more hurdles for them to overcome."