Quarter of Scottish SMEs axe staff as entrepreneurs ‘squeezed from both sides’ - Rathbones
“This double whammy makes it extremely difficult to plan, invest and build for the future” – Kindar Brown, Rathbones
A quarter of Scotland’s small and medium-sized businesses have been forced to axe staff as tax and cost pressures take their toll, a new survey suggests.
The same research reveals that 51 per cent of small and medium-sized enterprises (SMEs) north of the Border see rising taxation and regulatory burdens as one of the biggest threats to their businesses.
The findings have emerged in a targeted poll for Rathbones, one of the UK’s largest wealth and asset management groups. SME founders, owners and senior executives across Scotland laid bare the impact of cost pressures and higher taxes, including national insurance contributions, leading to more and more firms having to trim their headcounts.
Meanwhile, 69 per cent of those polled say policymakers do not understand their needs.
Kindar Brown, senior financial planner at Rathbones, said: “We consistently hear from business owner clients across Scotland that they are determined to grow, hire and contribute to the wider economy. But heightened tax pressures are increasingly stifling those ambitions.
“Entrepreneurs are being squeezed from both sides - higher taxes at the business level and rising personal tax bills. This double whammy makes it extremely difficult to plan, invest and build for the future.”
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With just under a third (30 per cent) of SME leaders in Scotland reporting that over a quarter of their personal wealth is tied up in their business, escalating operational costs are increasingly spilling over into their personal finances, the survey notes.
This pressure is intensified by a sharply rising personal tax burden. The freezing of higher, advanced and top income tax thresholds means that many SME owners and senior executives who draw income through salaries will face an increase in their tax liability.
Rathbones said higher dividend tax rates will impact those who have traditionally taken profits via dividends.
Brown added: “For most entrepreneurs, the line between business and personal finances is incredibly thin. Tax changes at either level can have an immediate impact on household income, retirement planning and long-term investment goals.
“That’s why it’s essential to consider business planning and personal financial planning together, rather than in isolation - particularly in a tax environment that is becoming more complex and less predictable.”
A report last month warned that business confidence in Scotland had slumped to its lowest level in more than three years, amid ongoing uncertainty and rising costs.
Sentiment tracked by accountancy body ICAEW’s regular Business Confidence Monitor, for the closing months of 2025, found that confidence north of the Border had decreased for the sixth consecutive quarter to a reading of -12.7, down from -0.5 in the previous quarter. It was the weakest confidence reading since the tail end of 2022 and below the UK average.
ICAEW said the findings reflected “ongoing uncertainty” surrounding both the UK and Scottish government Budgets, political developments ahead of May’s Holyrood elections, and a slowdown in general Scottish economic activity.
Scottish businesses responding to the survey identified the tax burden as the biggest growth challenge, cited by a record high of 68 per cent of respondents.
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