What Small Businesses Need to Know

The latest UK economic figures offers important insights for small businesses like restaurants, cafés, consultancy services, trading businesses, import-export companies, online sellers, groceries, supermarkets, delivery services, caterers, warehousing, IT technology firms, small builders, and other professional services.
Our aim in this update is not just to summarise the numbers but to focus on what truly matters to you — running and growing your business efficiently.

Economic Overview: Encouraging Signs of Growth

The UK’s Gross Domestic Product (GDP) grew by 0.5% in February 2025, with all major sectors — services, production, and construction — recording growth. Over the three months leading up to February, GDP increased by 0.6%, largely thanks to the services sector.

This points to a gradually improving economic environment, where consumer activity is stabilising, offering small and medium-sized enterprises (SMEs) better ground to plan ahead.

Services Sector: Steady Expansion Supporting Key Industries

The services sector, crucial for small businesses, expanded by 0.3% in February, and by 0.6%over the past three months. Sectors seeing particular strength included:

• Information and communication (+2.2%) – positive for IT firms and tech consultants.
• Wholesale and retail trade (+1.0%) – supporting groceries, online sellers, and local shops.
• Administrative and support services (+1.3%) – good news for consultancy and outsourced support businesses.

Meanwhile, consumer-facing services such as food and beverage outlets grew by 0.7% in February, reinforcing opportunities for restaurants, cafés, and catering businesses.

Production and Construction Sectors: Mixed but Positive

The production sector grew by 1.5% in February, with manufacturing seeing widespread gains, especially in electronics and pharmaceuticals. This is promising for businesses in trading, distribution, warehousing, and logistics.

Construction output rose by 0.4% in February, driven by public sector projects. Small builders and contractors might find fresh opportunities in public housing repairs and new public developments.

Managing Rising Costs: Key Tax Tips for Small Businesses

Although the GDP numbers bring good news, businesses must still manage rising costs, including materials, energy, and employment expenses — all under the weight of ongoing inflation and new tax rules.
Here are a few ways to keep your business resilient:

• Tax Allowances: Make full use of tax exemption and allowances to deduct taxable profits and earnings to maximum under law permitted.
• Employment Allowance: Check if you qualify to reduce your National Insurance bill.
• Allowable vs. Disallowed Costs: Ensure you are claiming all allowable expenses like office costs, travel, staff salaries — and avoiding non-claimable personal expenses.
• Capital Allowances: Remember to claim deductions on investments in assets such as new IT systems, warehouse fittings, and machinery.
• Research and Development (R&D) Tax Relief: From 2025, changes are being introduced to simplify and merge existing schemes, so if your business is involved in innovation — even in areas like software, food production, or manufacturing — it's worth reviewing whether you can claim enhanced R&D tax credits under the new rules.
• Cost Control: Regularly review your supplier contracts, energy tariffs, and operational overheads. Small, smart savings add up fast.

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