By Dame Teresa Graham, Chair of the Administrative Burdens Advisory Board of HMRC and member of the BCC’s Economic Advisory Council (EAC)
I chair HMRC’s Admin Burdens Advisory Board (ABAB) which scrutinises and challenges HMRC on its small business performance. ABAB was set up in 2006 to act as a “critical friend” to HMRC as part of government efforts to improve its customer service.
We are an unpaid group, made up of independent, external members with a wide range of small business knowledge and expertise, representing a cross section of businesses and professions. We provide HMRC with a unique channel to (and representation of) the small business community so that they can better understand the regulatory and administrative burdens impacting small business performance and growth.
What Small Businesses Are Telling Us
At ABAB, we hear a lot of concerns coming through our annual survey of small business, where we learn about experiences of engaging with HMRC products, services and processes. This year we received over 10,200 responses to our survey – a new record and over three times last year’s total – but the findings aren’t great reading. They tell us that the tax system is becoming more complex, generating a significant burden on SMEs, distracting business owners from running their companies, and putting both growth and tax revenues at risk.
Respondents to the survey are resigned into accepting that increased bureaucracy is the “cost of doing business” in the UK. Their message to government is clear: it must address the “legislative burden” of taxation, rather than potentially adding further taxes. Even when respondents say a reporting requirement or tax obligation has become easier, this often means they have absorbed the burden in a way that allows them to move on from it. Cumulatively, every year things hit small businesses in a disproportionate way. The smallest changes have profound effects. Many must also rely on professional advisers, adding further compliance costs.
Findings from our survey are shared with HMRC and the Ministerial team overseeing their operations. Wider government has recognised the importance of reducing the regulatory burden for businesses, but it must now do the same for the tax system.
Additionally, BCC recent cost stack shows that, since 2016, domestic policy-driven costs have added significant pressure to UK businesses. BCC modelling shows that for a typical SME, these costs have risen by more than 70%, with around a quarter of that increase coming since the Autumn 2024 Budget[1].
SMEs Contribution to the UK Economy
The new Prime Minister and his government should be eager to align themselves with SMEs, given their substantial economic impact on the UK. In 2024, SMEs accounted for 99.9% of all UK businesses. They employed 16.6 million people, accounting for 60% of the total workforce. Their collective turnover was estimated at £2.8 trillion, a whopping 52% of private sector turnover[2].
The potential for rapid growth among SMEs is also substantial. The Scale Up Institute reported that a relatively small number of fast-growing SMEs, around 30,000, generate 50% of the turnover from the broader SME community[3]. So, adding a few thousand more to this cohort would make a huge difference to the UK’s economy.
Barriers to Growth
With their huge economic contribution and potential, it’s in everybody’s interests to remove unnecessary and costly regulatory and admin burdens. But SMEs continue to face significant barriers, especially when it comes to scaling up and exporting. Complex regulations and accessing the right finance at the right time are major barriers.
Whilst I support the principles and goals of EU regulations on environmental and human rights, they do present a unique set of challenges for businesses, particularly impacting how large corporations manage their supply chains. These regulations, designed to ensure companies adopt robust due diligence throughout their businesses, do not directly apply to SMEs. Their effects are often felt when SMEs form part of the regulated supply chain. The unintended consequences to SMEs could be very damaging.
The need to comply may lead to big businesses replacing SMEs with larger entities to make their reporting easier. This will lead to loss of business for SMEs, reduced opportunities for learning and a failure to adapt to new regulatory environments. We need to ensure that SMEs are rewarded, and not adversely impacted, for doing the right thing.
Public Procurement – Giving SMEs a Fairer Share
The Government spends billions annually on procurement, managed by civil servants who may gravitate towards purchasing from large, well-known corporations because of perceived reliability and cost-effectiveness. This practice can sideline SMEs, which might offer equal or better value. The BCC and Tussell’s SME Procurement Tracker shows that only 21% of direct public sector spending was with SMEs in 2025[4].
And why isn’t there a greater emphasis within tender documents for big companies to demonstrate the significance of their SME supply chains and how they actively support, promote and protect them?
A Stronger Collective Voice for SMEs
A new Prime Minister presents another opportunity for SMEs to influence policy in a way that acknowledges and leverages their contribution to the economy. SMEs are not a single group, but rather a diverse community of small organisations. To cut through the noise, and get their message across, they must coalesce around issues, focus on a concise set of strategic proposals, with agreed delivery dates.
Collective bargaining is usually associated with trade unionism and workers’ rights, which is not always seen as aligned with business thinking. The 1968 sewing machinists strike by female workers at Ford’s Dagenham plant helped to bring the issue of gender pay disparity to the forefront of public consciousness. The strike led directly to the passing of the Equal Pay Act 1970, which aimed to prevent discrimination regarding terms and conditions of employment between men and women.
Collective action by environmental groups has led to substantial policy shifts globally, including the UK government’s commitment to carbon neutrality by 2050. Sustained campaigns by the climate change movement have pushed governments to adopt more aggressive environmental policies.
Now is the time for SMEs to adopt collective bargaining. Business federations and coalitions, routinely lobby for changes that benefit SMEs across sectors. Their collective voice has influenced policies ranging from tax reforms to regulatory relief, demonstrating the strength of unified lobbying efforts.
To make the most of this opportunity, we must bring all the convening bodies together, including the FSB, the BCC, the CBI, the IoD and Make UK, to agree on 10 key priorities that are too good to be ignored, and that all business groups can support. Let us get all the convening bodies that represent SMEs in a room, lock the doors, and not emerge until the white smoke has been released.
Starter List of Priorities
So, here’s a starter for Number 10 from me. First, adjust the VAT threshold to alleviate the “bunching” effect which can discourage SMEs from growing beyond certain point due to increased tax and regulatory burdens.
Second, review the capital requirements for challenger banks to encourage more supportive banking environments for SMEs, and foster more robust growth and development in this sector.
Third, ensure that the approach to R&D tax credits, which provide much needed tax reliefs in this fast-moving world, is fair and speedy and not an exercise in denial, delay or deferment.
Andy Burnham has described “Number 10 North” as a new nerve centre for devolution and economic growth, and he has introduced an initiative to make the interface between national, regional and local government more collaborative and transparent. As part of this, secondments have been launched between the Civil Service and Mayoral Authorities, to help increase capacity of authorities. Sounds good – but can we go further? What about secondments between the Civil Service and business, so that officials can experience for themselves what it’s like day-to-day for business and then take that experience back into their departments to help inform change.
A Call for Consensus and Action
We must come together now to forge a consensus on key policies that will empower the next wave of 30,000 high-growth SMEs. Our collective voice can shape an economic landscape where SMEs are not just surviving but thriving. Responsible for half of GDP and key to growth, we all depend on it.
[1] https://www.britishchambers.org.uk/cost-stack-calculator/
[2] https://www.gov.uk/government/statistics/business-population-estimates-2024/business-population-estimates-for-the-uk-and-regions-2024-statistical-release
[3] https://www.scaleupinstitute.org.uk/reports/scaleups-in-the-uk/
[4] https://www.britishchambers.org.uk/news/2026/05/procurement-spend-with-smes-hits-six-year-high/