Kindar Brown – Senior financial planner at Rathbones

SME founders, owners and senior executives across Scotland disclosed cost pressures and national insurance contributions are weighing heavily on firms and driving up redundancies.

The findings, in a targeted poll for Rathbones, reveal that rising taxation and regulatory burdens are now one of the biggest threats to more than half of smaller firms in Scotland (51%) second only to overall rising costs, cited by 59% of respondents.

With just under a third of (30%) SME leaders in Scotland reporting that over 25% of their personal wealth is tied up in their business, escalating operational costs are increasingly spilling over into their personal finances.

This pressure is intensified by a sharply rising personal tax burden, they say. The freezing of Higher, Advanced and Top income tax thresholds means many SME owners and senior executives who draw income through salaries will face an increase in their tax liability. Whereas higher dividend tax rates will impact those who have traditionally taken profits via dividends. These changes are forcing business owners to consider whether the current method being used for profit extraction remains the most appropriate.

Kindar Brown, senior financial planner at Rathbones, says: “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.

“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.”