Business cost concerns hit record high as SMEs brace for April tax rises

Rising business costs have become the number one concern for small and medium-sized enterprises (SMEs), with a record share of finance brokers warning that their clients are under growing pressure ahead of a wave of tax and policy changes due to take effect in April.

According to iwoca’s latest SME Expert Index, 58% of finance brokers now say increased running costs are the main worry for the small businesses they support. This is up 10 percentage points from 48% in Q3 2025 and marks the highest level recorded since the index began tracking the measure in late 2022, highlighting the intensifying cost pressures facing the UK’s 5.5 million SMEs.

April tax changes loom large

The findings come as small businesses prepare for a series of Government measures coming into force in April 2026, many of which are expected to push costs higher. When asked which changes would have the most negative impact, a third (33%) of brokers pointed to the planned increase in the National Minimum Wage as the single biggest concern.

Increases to dividend tax rates were cited by 26% of brokers, while business rates reform was flagged by 24%, underlining the breadth of financial pressures facing SMEs across sectors.

Against this backdrop, finance brokers overwhelmingly believe that lower taxes would do the most to support SME growth in 2026. Almost half (46%) named tax cuts as their top policy priority, more than three times as many as those calling for a pause in minimum wage increases (14%) or enhanced local business support (14%). The share calling for lower taxes has also risen sharply from 38% in 2024, reflecting growing frustration over the cumulative burden on smaller firms.

Demand for finance rises despite cost pressures

Despite mounting concerns over rising costs, brokers report that appetite for external finance is strengthening as businesses seek to invest and manage cash flow. Nearly three-quarters (74%) of brokers expect demand for SME finance to rise over the next six months, up from 66% in the previous quarter.

This is reflected in iwoca’s SME Lending Thermometer, which climbed to 5.98 in Q4 2025 from 5.15 in Q3, on a scale where 1 represents extremely low demand for finance and 10 extremely high demand.

At the same time, fears of a looming recession appear to be easing. Just 42% of brokers say their SME clients are worried about the prospect of a downturn, down from 48% in Q3 2025, marking the lowest level in three quarters. The easing of recession fears suggests business confidence may be beginning to recover as firms head into 2026.

Giovanni Contratti, Director of Broker Channel at iwoca, said small businesses were being squeezed by higher operating costs, with further pressure expected from April’s policy changes.

“Small businesses are clearly feeling the pressure of rising costs, and the further Government-mandated cost increases in April will add to that burden,” he said. “But what’s encouraging is that SMEs aren’t sitting back. Demand for finance is growing as businesses look to invest and continue growing.

“We’re seeing businesses take action rather than cautiously waiting and seeing, and at iwoca, we’re backing them with the flexible finance they need to navigate these pressures.”

As SMEs weigh higher wage bills, tax changes and ongoing cost volatility, brokers say the coming months will be critical in determining whether improved confidence can translate into sustained investment and growth across the small business sector.