Economy & Small Business
Give Scotland’s Small Firms Room to Grow
Reform’s contract with small business, and its apprenticeship wage credit, are a practical offer to the firms that already employ more than half of Scotland’s private-sector workforce: keep more of what you earn, hire more easily, and train the next generation here.
The country is already in the van
Walk any Scottish high street, industrial estate or harbour and you are looking at the same country the statistics describe. As of March 2025, Scotland had 381,855 small and medium-sized enterprises. They are 99.4 per cent of private-sector businesses. They provide about 1.2 million jobs, 56.2 per cent of private-sector employment. Large firms still matter. They do not employ most people, and they do not fill most postcodes.
That is not a romantic story about start-ups. It is the plumber in Broughty Ferry, the café in Paisley, the fabricator in Fraserburgh, the farm at Fordoun and the software studio in Leith. It is the owner who writes the wages, drives the van and answers the phone after hours. Reform’s published contract with small business starts from a simple proposition: those firms are not a cashpoint. They are how Scotland works.
| Measure | Figure |
|---|---|
| SMEs operating in Scotland | 381,855 |
| Jobs in those SMEs | 1.2 million |
| Share of private-sector employment | 56.2% |
| Medium-sized firms (50 to 249 staff) | 3,930 |
| Unregistered for VAT or PAYE | 54.5% |
Scottish Government, Businesses in Scotland: 2025. SMEs are firms with fewer than 250 employees. Unregistered businesses are those with neither VAT nor PAYE registration.
The ladder from small to medium is thin. Scotland has hundreds of thousands of small firms and fewer than four thousand medium ones. That is the gap Reform wants to close: not by lecturing owners about productivity, but by removing the taxes, hiring costs and paperwork that make the next hire, the next apprentice and the next van feel like a mistake.
The squeeze is real, and it is measurable. The Federation of Small Businesses’ Scotland index for the second quarter of 2026 found confidence still below zero. Nine in ten Scottish small firms said costs had risen again. Fuel and utilities were the largest sources, then staffing and tax. Equal shares, 25 per cent, expected to grow and to contract over the next year. Fraser of Allander research found four in five Scottish firms facing higher payroll costs after Labour’s employer National Insurance rise, with almost half pausing recruitment. Skills Development Scotland recorded 25,507 Modern Apprenticeship starts in 2024/25, while starts among 16 to 19 year olds fell 2.8 per cent. Reform’s apprenticeship paper records a 40 per cent fall in manufacturing and engineering starts since 2017.
None of that is an argument for despair. It is an argument for a better deal. Reform has now published one: raise the VAT ceiling so firms can grow, reverse the jobs tax on British workers, scrap IR35 so a contractor can be hired on a commercial invoice, put a 30 per cent wage credit behind 16 to 18 year old apprentices, restore full inheritance-tax relief for family farms and firms, cut energy and fuel costs, and get Whitehall out of the way. The five firms below are fictitious. The rules they live under are not.
The offer is not a slogan. It is a change in the arithmetic of a van, a payroll, an apprentice, a family farm and a start-up.
Five firms, five ceilings, one better year
Meet them first, then walk the books. Each business is built from published Scottish data and Reform’s printed policies. The names are invented so we can show the mechanism without pretending to quote a real owner.
Claire Henderson still turns work away
Henderson Plumbing · Broughty FerryClaire took on her father’s round eight years ago. She works it with one employed plumber. Rolling 12-month turnover sits at about £87,000, just under the £90,000 VAT registration line. More than half of Scotland’s private businesses are still unregistered for VAT or PAYE. Claire is one of them, and not because the work is a hobby. Copper, the diesel van, insurance and the wage eat most of the takings. What she draws is an ordinary skilled wage, not a windfall.
The ceiling is turnover, not profit. Reform’s contract is blunt about that: £90,000 sounds large until you subtract copper, boilers and diesel. When Claire crosses the line she must charge 20 per cent VAT on everything she supplies. Households cannot reclaim it. A £12,000 bathroom in Monifieth becomes £14,400, or she swallows the tax and the extra work pays her less than staying small. So in a good March she slows down. The OBR has already counted that behaviour nationally: tens of thousands of firms capping output just below the threshold, with hundreds of millions of pounds of work simply not done.
Today
£87,000Turnover held just under the VAT line
A £12,000 domestic bathroom would add £2,400 of unreclaimable VAT if she registered, and VAT would then sit on the rest of the round as well. The diesel van remains a tool, not a lifestyle. The Zero Emission Vehicle mandate still points manufacturers towards electric vans they cannot charge at a customer’s drive.
Under Reform’s contract
£150,000VAT threshold, rising with inflation
Claire has about £63,000 of headroom before VAT. She can take the bathrooms, keep household prices as prices, and grow without a month off to stay legal. Reform would also scrap the van mandate so she replaces vehicles when it makes commercial sense, and make the 5p fuel-duty cut permanent.
VAT, fuel duty and the van mandate are reserved to Westminster. Illustration only: a labour-heavy trades firm serving domestic customers, which is where the threshold bites hardest. Input VAT on materials would offset some of the bill after registration; it would not cancel a 20 per cent rise on the labour the householder pays.
The Rowan can keep Saturday without a new wage
The Rowan café-bistro · PaisleySiobhan and Mark Rowan employ ten people in a converted shop off the high street. Three full-timers at £28,000, three at £22,000, four at £16,000. After the Employment Allowance of £10,500, Labour’s 15 per cent employer National Insurance on pay above £5,000 still leaves them writing a cheque of about £14,100 a year. Fraser of Allander found that pattern across Scotland: higher payroll costs, then higher prices or a hiring freeze. The Rowans did both. Weekend cover is the gap. They need extra hours, not a permanent eleventh wage.
Reform would cut the employer NIC rate from 15 per cent back to 13.8 per cent for British workers. On this payroll that is about £1,970 a year left in the business, every year, before anyone works a single extra shift. That is the Westminster half of the deal, and it is the number that matters on Monday morning. Reform would also scrap Labour’s Employment Rights Act, which even the government’s own analysis said would cost small firms more. FSB Scotland still finds fuel and utilities among the top cost drivers. Cheaper energy is a tax cut by another name for a kitchen that cannot close. The Hard Work Bonus, as printed, would take income tax off overtime for staff earning under £75,000. That is devolved for Scottish earnings. Holyrood would have to match it before the Rowan chefs kept Reform’s illustrated extra £2.50 an hour.
Today
£14,100Employer NI after the £10,500 allowance
Rate 15 per cent above £5,000. Day-one employment rights raise the risk of taking a chance on a young kitchen porter. Energy sits in the same cost pile as wages. Saturday cover is still a hiring problem, not an overtime problem the café can solve on its own.
Under Reform’s contract
£1,970Kept each year from reversing the jobs tax
The rate cut lands whether or not anyone works late. Reform would scrap the Employment Rights Act. If Holyrood matched the Hard Work Bonus, extra Saturday hours would finally be worth taking. That match is a Scottish choice, not a UK payroll change.
Illustrative payroll: 3 × £28,000, 3 × £22,000, 4 × £16,000, Employment Allowance £10,500, secondary threshold £5,000. Saving is the 1.2 percentage-point rate cut only; Reform has published a rate reversal, not a return of the old £9,100 threshold. Overtime income tax on Scottish earnings is devolved.
Stevie MacLeod can finally train two welders
MacLeod Fabrication · FraserburghSixteen people, a shed on the industrial estate, work for the fishing fleet and the energy supply chain. Two of Stevie’s best welders retire within 18 months. He has wanted 16 and 17 year old apprentices for years. He has not taken them. Existing SDS support pays towards formal training. It does not pay the wage while a youngster is still learning which end of the job is hot. If they qualify and walk across the road, he has trained a competitor. That is why small firms hesitate, even while manufacturing and engineering apprenticeship starts have fallen 40 per cent across Britain since 2017.
Reform’s apprenticeship wage credit is built for firms like this: a pay bill under £3 million, apprentices aged 16 to 18 with the right to work in the UK. The business receives 30 per cent of the statutory apprentice wage back as a tax credit, published as about £4,742 a year, or roughly £8,300 over a typical apprenticeship. Two starts would put about £9,484 a year back into MacLeod Fabrication. If those young welders stay two years after they qualify, each receives a £2,000 retention bonus. The cash goes to the worker. The point is to make Stevie’s investment less of a gamble. On the existing 16 adult staff, reversing the jobs tax saves about another £5,180 a year. Apprentices under 25 already sit outside most employer NI. The credit is the new money.
Today
0School-leaver apprentices on the floor
SDS recorded 25,507 Modern Apprenticeship starts in Scotland in 2024/25, but starts among 16 to 19 year olds fell 2.8 per cent. Training support still leaves the wage, the supervision time and the poaching risk with the small employer. Two welders are about to go.
Under Reform’s wage credit
£9,484A year back on two 16-18 apprentices
About £16,600 over a typical pair of apprenticeships, plus £2,000 to each youngster who stays two years after qualifying. Add about £5,180 from the NIC rate cut on the adult payroll. Scotland still runs Modern Apprenticeships; the credit would cut the wage cost that currently sits on the SME.
Wage credit figures are Reform UK’s published costing on the statutory apprentice wage. Eligibility: pay bill below £3 million; apprentices aged 16-18; right to work in the UK; no prior qualification at or above that level in the same occupation. The UK target of 600,000 starts a year is a Westminster goal; the tax credit would still apply to qualifying Scottish employers.
Fiona Strachan should inherit a farm, not a tax bill
Burnside of Fordoun · LaurencekirkHelen Strachan is 68. The land, the stock, the kit and the farmhouse at Fordoun are worth about £3.9 million. That is a working mixed farm on the Howe of the Mearns, not a Mayfair holding. Fiona, 36, already runs the cattle. She wants the next generation on the place. What she does not want is to sell a field to HMRC when her mother dies. Labour limited 100 per cent Agricultural Property Relief to the first £2.5 million of qualifying assets per person. Above that, relief falls to 50 per cent, leaving an effective 20 per cent inheritance-tax charge. On £1.4 million above the cap, that is a £280,000 bill. The House of Commons Library has already put the average extra family bill, nationally, at about £273,000 by the end of the decade.
Reform would restore uncapped agricultural and business property relief. The Strachans keep the farm in the family. There is a good reason to treat farms differently: they spin off less cash than a share portfolio, they are hard to sell in pieces without making the remainder unviable, and a death-tax bill arrives whether or not it is a decent year to sell cattle or ground.
Today
£280,000Illustrative IHT on assets above the £2.5 million cap
Fiona cannot treat the succession as settled. A working farm has to find cash that the harvest may not provide. The bill is the point of Labour’s cap, not an accident of it.
Under Reform’s contract
£0Death tax on the qualifying family farm
Uncapped APR. Fiona spends the year on stock and ground, not instructing solicitors. The farm stays a farm.
Illustration: a widowed owner, so the transferable £5 million couple cap does not apply. Qualifying agricultural assets £3.9 million; £1.4 million above £2.5 million charged at an effective 20 per cent. Real bills depend on reliefs, debts and valuations. APR and IHT are reserved to Westminster.
Eilidh Kerr can hire a contractor and take her father’s cheque
Kerr Logic · LeithEilidh is 31. She left a contracting desk 18 months ago and founded Kerr Logic in a Leith studio: field-service software for trades, four people, still the size of a proper seed company. More than half of Britain’s innovative small firms say they struggle with GDPR. On a four-person payroll that means lawful-basis memos, cookie banners and a privacy notice before she has shipped the next feature. Economists have found that GDPR cut venture investment in European tech by about 25 per cent against American competitors. She is trying to raise a small round. She is also trying to hire a specialist contractor for a six-month payments integration. Since 2021, off-payroll working has pushed agencies and many contractors onto inside-IR35 umbrellas: employment-style tax on the engagement, none of the holiday, sick pay or redundancy a real employee gets. That makes the hire dearer, or it does not happen.
Reform’s 2024 contract pledged to abolish IR35 to support sole traders. Richard Tice has said a Reform government would scrap it as part of simplifying rules for the self-employed. The party has since said the off-payroll rules would go too. A genuine contractor could invoice again, and Eilidh could buy six months of skill without pretending the person is on the payroll. Reform would also scrap UK GDPR and replace it with a New Zealand-style privacy law: collect what you need, keep it secure, no lawful-basis maze. Her father wants to put £25,000 into the company. Today Seed Enterprise Investment Scheme relief is available to a golf partner and not to a parent. Reform would let parents and grandparents invest on the same tax-favoured terms, with anti-avoidance so nobody funnels their own money around in a circle.
Today
No hireContractor only through an umbrella, or not at all
Inside-IR35 loading makes a six-month specialist too dear. GDPR sits on a four-person team as if it were a bank. Father’s £25,000 is locked out of SEIS because he is a close relative.
Under Reform
The specialist startsIR35 and the off-payroll rules scrapped
A commercial invoice, not PAYE on a freelancer. New Zealand-style privacy instead of GDPR. Father’s £25,000 can sit inside SEIS. Eilidh ships the integration and keeps the company a start-up, not a compliance desk.
Kerr Logic is sized to current SEIS tests: unquoted, early trading, fewer than 25 staff, modest assets. Small companies are not the 2021 off-payroll status-determiner; IR35 still distorts the contractor market they buy from. Reform’s published pledge is to abolish IR35; later statements cover the off-payroll rules as well. IR35, GDPR and SEIS are reserved to Westminster. EIS for more established companies is a later Reform step, not claimed here.
What Reform has put in print
The five firms are the method. The contract is the policy. Reform UK has now published a five-part offer to small and medium businesses, plus a standalone apprenticeship wage credit aimed at non-levy employers, plus a long-standing pledge to abolish IR35. None of it requires a new theory of the Scottish economy. It requires a government that prefers a second shop, a second van, a first apprentice and a first contractor to a larger spreadsheet in Whitehall.
Read the published papers in full: Contract with Small Business and the Apprenticeship Wage Credit.
- £150,000
- VAT registration threshold
- 13.8%
- Employer NI on British workers
- 30%
- Wage credit on 16-18 apprentices
- £2,000
- Retention bonus after two years
- IR35
- Scrapped for contractors
Put the five illustrations on one page and the direction is the same. Henderson Plumbing is allowed to take the next bathroom. The Rowan keeps £1,970 a year from reversing the jobs tax. MacLeod Fabrication can train two welders without donating them to the yard next door. Burnside of Fordoun can plan a succession rather than a sale. Kerr Logic can hire a contractor, file a shorter privacy notice and take her father’s SEIS cheque. That is what a growth policy looks like when it is written for the firms that actually exist.
It is also what a skills policy looks like when it is honest. Scotland already has Modern Apprenticeships, and 25,507 people started one last year. The gap is not a lack of civic speeches. It is the cash and the risk on a small payroll. Reform’s credit follows the young person into a real job. Combined with Making Welfare Work, it is a route off benefits for people who can work, and a route into a trade for people who never wanted a degree they did not need.
Westminster writes the payroll. Holyrood still has work to do.
Honesty about powers is part of treating business owners like adults. Holyrood cannot raise the VAT threshold, cut employer National Insurance, restore Agricultural or Business Property Relief, redesign SEIS, repeal IR35 or repeal UK GDPR. Those sit at Westminster. A Reform government there can deliver the contract. Holyrood can still decide whether Scotland is a high-tax, high-rates, high-energy place in which those UK reforms land, or a country that meets them halfway.
Scottish earned income is taxed at Scottish rates. The Hard Work Bonus, as printed, is an income-tax cut on overtime. For Claire’s plumber and the Rowan chefs, Holyrood would need to match it. Skills delivery sits with Skills Development Scotland. The wage credit is a UK tax credit, so it can still reach a Fraserburgh payroll; the training system around it remains a Scottish choice. Business rates, planning and a large share of energy policy are already in Edinburgh. Reform UK Scotland’s 2026 manifesto would reverse the April 2026 rates revaluation, phase out LBTT, scrap SNP Net Zero targets and related quangos, end the nuclear ban and back the North Sea. Every extra 1 per cent of Scottish growth is costed in that manifesto at about £8 billion of extra tax revenue over ten years. The firms above are how that 1 per cent actually appears: another bathroom, another Saturday, another apprentice, another harvest, another product shipped.
Lower taxes on business are not a gift to “the rich”. A firm has no separate money tree. Tax, rates, energy levies and compliance come out of prices, wages, kit or survival. In Scotland the owner and the worker are often the same household. Back the firm and you back the people who write the wages.
Take the risk. We will back you.
Return to Claire, Siobhan and Mark, Stevie, Helen and Fiona, Eilidh. None of them is asking for a subsidy to sit still. They are asking for the next honest year to be worth having. A country that wants more trades, more high streets, more farms and more software has to stop fining the people who provide them for succeeding.
That is the order Reform has put in print. People build a family, then a firm, then a community. A country is what those add up to. It is not a department that owns them.
- Family
- A family farm is not a loophole. It is a parent teaching a trade, a daughter taking the books, a father putting money into a start-up instead of a stranger’s fund. Tax should let that continue.
- Firm
- The Scottish manifesto says people should be able to create prosperity for their families and communities. That starts with cash left in the business for wages, vans, apprentices and a second site.
- Country
- Reform’s contract is plain: take the risk, hire the worker, hire the contractor, train the apprentice, open the shop, grow the business. Government gets out of the way, and it backs you while you do it.
Scotland already has the firms. 381,855 of them, employing 1.2 million people, sitting in every postcode from Broughty Ferry to Fordoun to Leith. The contract, the wage credit, the abolition of IR35 and a Holyrood programme that stops punishing expansion are how those firms get bigger instead of careful. That is a positive offer because it trusts the people who already get up and make this country work.
Hire the worker. Hire the contractor. Train the apprentice. Open the second shop. Scotland will be richer when they do, and Reform is ready to clear the path.
Read the full policy papers
This article shows how the published UK policies would land on Scottish firms. The papers themselves set out the costings, eligibility rules and the full five-part contract.
