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SMEs facing an uncertain future

SMEs facing an uncertain future 45



SMEs facing an uncertain future 46

By Roan Lavery, Co-Founder & CEO, FreeAgent


The UK is currently in a major period of instability. Soaring energy costs, economic volatility and the ongoing cost of living crisis have impacted millions of SMEs across the country.

SMEs, unlike their larger counterparts, are unable to easily absorb rising costs and issues arising from late payments. It is harder for them to maintain a healthy cash flow during turbulent times, leaving many struggling to survive in the current economic landscape. 

It is undeniable that the current situation has negatively impacted SMEs. At FreeAgent, we’ve been conducting research to determine how detrimental it has been for small businesses, and the results are fairly sobering. Our latest research found that an astonishing 64% of business owners said they were worried their businesses won’t survive the next 12 months – with many saying they didn’t expect to receive any help from the government to keep their businesses afloat.

There is also a disparity of opinion between business owners and accountants regarding the current – and future – political and economic outlook of the UK. While 1 in 5 (22%) SMEs have faith that there is a much greater chance of their business surviving now that Rishi Sunak is Prime Minister (compared to previous leaders), just 7% of accountants feel the same. 

Policy decisions – a help or hindrance?

Businesses are soon to feel the mounting pressure of staying afloat as the government’s recent Autumn Statement focused heavily on tax increases and spending cuts. This includes the decision to freeze the VAT registration threshold of £85,000 until at least March 2026. We need a multifaceted solution to ensure the UK can secure a path to long-term sustainable growth, and yet this does not seem to be in the pipeline at this moment. 

Future tax cuts could potentially lead to a healthier job market for accountants and geographical expansion for SMEs. However, more than a third (37%) of accountants and 22% of SMEs say they would use any future tax cuts announced by the government just to stay afloat as the current economic volatility is sure to have a lasting impact. 

Almost 2 in 5 (37%) of respondents said they were not confident that the government will step in to support businesses facing an economic environment about to enter a long recession.

Are pressures on SMEs becoming insurmountable?
Understandably, Covid and Brexit have had a major impact on both accountants and SMEs. Not only have businesses had to grapple with new legislation, supply chain issues and lockdown closures, they’ve also had to navigate rising energy bills, inflation and finding the right staff – all of which were cited in our research as top pressures for both accountants and SMEs. 

Despite needing to find and retain the right staff, 26% of accountants say they have implemented hiring freezes, almost a quarter (24%) of SMEs have reduced employee benefits as a result of the cost of living crisis, and 25% have halted training programmes. However, only 12% of accountants have sacrificed staff training, highlighting how essential it is to upskill their staff and remain compliant. In a world where digital transformation is a must, both SMEs and accountants say they would rather reduce employee benefits (avg 23%) than cut spend on technology (avg 11%).

SMEs are known for their unwavering resilience, but they cannot survive on their own. Small businesses need the support of experts from across multiple different areas, with the role of the accountant, in particular, likely to become more important than ever in the coming years. 

Accountants will inevitably become trusted, expert advisors to SMEs, as their knowledge and guidance around Making Tax Digital (MTD) – a key part of the government’s plans to make it easier for businesses to get their tax right and keep on top of their affairs – will prove invaluable. Given the current direction of travel on interest rates, in particular, it will be essential for SMEs to know where to turn for support and advice, and where they should be looking for access to funding and finance. 

What can be done to help SMEs not only survive, but thrive?

Our research shows SMEs want the government to expand the energy cap to cover small businesses (43%), introduce new government loans specifically for energy bills (37%) and to implement a windfall tax on energy/fuel companies (33%).

Accountants, on the other hand, agree that a windfall tax (43%) would be the most useful thing for the government to introduce, alongside expanding the energy cap (41%) and introducing government-driven discounts on bills (34%). 

Small businesses form the backbone of the UK economy. It is crucial that the government steps in to create an environment that facilitates growth for SMEs and allows them to thrive. Our research currently paints a fairly bleak picture for the UK economy, and with a majority of respondents believing their businesses will fail in a year’s time, action must be taken now to protect these enterprises.


Roan Lavery is CEO and co-founder of FreeAgent, who make award-winning cloud accounting software for small businesses and accountants. 

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