AI keeps small firms alive as costs spiral out of control

Artificial intelligence is no longer a shiny add-on for small businesses — it’s becoming a lifeline. Across the UK, overstretched owners are turning to AI to cut admin, plug staffing gaps and stay afloat as costs pile up. Nine in ten business leaders say AI-driven change will only speed up, and for most small firms the priority isn’t growth — it’s survival. Only once the pressure eases are they using AI to expand, innovate and compete. But as AI boosts productivity and profits, a new question is emerging: will the government eventually come knocking for a share?

AI is being used as a survival tool for small and micro businesses, to cut costs, reduce admin, and stay afloat. 9 out of 10 UK business leaders say organisational change fuelled by AI will accelerate in the next year. Not one expects it to slow down. Yet many businesses using AI in this fast-paced business environment are using it to stay alive rather than grow. Most small businesses adopt AI because they’re overwhelmed, understaffed, drowning in admin and need to cut costs. Only once all that’s sorted out using AI can they realistically use it to grow.

Across the UK, AI adoption is accelerating fast, not just in tech firms, but in small and medium‑sized businesses across every sector and it’s being used to survive rising costs and complexity: rising wages, higher tax and compliance burdens, fragmented tech systems and skills shortages.

Photo by Steve Johnson on Unsplash

Naomh McElhatton, the Irish Ambassador for Women in AI and Principal AI Strategist at www.businessofai.club says: “Across the British AI Association, we’re seeing small and micro businesses use AI first for survival, cutting admin, improving efficiency and managing costs. But the businesses getting the most value are the ones that start with the ‘why’ first: being clear on the problem they are trying to solve, having a strategy for where AI can add value and making sure their data is in a good place. Once that foundation is there, AI is much more likely to support growth, innovation, and scale.”

AI is increasingly used as a cost‑saving and time‑saving tool, especially for:

• Bookkeeping and finance

• Admin and scheduling

• Customer service

• Marketing content

• Inventory and supply‑chain management

77% of small and micro businesses are using AI to increase productivity according to research by Intuit/Quickbooks. This is survival mode: freeing up hours, reducing admin, and coping with staff shortages.

AI is also being used to grow. The UK Government’s AI Sector Study shows:

• AI company revenues grew 68% in one year

• AI sector GVA more than doubled

• AI firms increased by 58% in two years

This isn’t just AI companies. Small businesses across the economy are using AI to:

• Launch new products

• Enter new markets

• Scale marketing

• Improve customer experience

• Analyse data they previously couldn’t use

4 in 10 small businesses report expanding AI use across finance, marketing, and operations. According to Intuit they are saving a full day a week in admin via automation. This time can be diverted into working on the business, using AI to do things they couldn’t do before. This is growth mode. However survival comes first. Most small businesses adopt AI because they’re overwhelmed, understaffed, drowning in admin and need to cut costs. Once AI frees up time and reduces pressure, they then use it to grow. AI is becoming the “circuit breaker” that lets small businesses escape the “hidden tax on growth” caused by rising costs and tech fragmentation.

If businesses are escaping the hidden tax on growth and AI could shrink the tax base by reducing human labour, should we be thinking about taxing AI‑driven growth? It’s a question on which the debate has begun.

Some economists argue that as AI increases productivity, which increases profits and profits increase inequality if not taxed, as well as reducing employment and therefore lowering income‑tax receipts, so AI driven growth should be taxed. AI‑heavy firms may grow faster than traditional firms so there’s an argument for some sort of “robot tax”, productivity‑linked levy or a surcharge on AI‑enabled profits.

Business groups and other economists counter that. They argue that AI is essential for UK competitiveness and taxing that would slow adoption, lower productivity and GDP which would ultimately lower the tax revenue

Microsoft estimates accelerated AI adoption could boost UK GDP by £550 billion by 2035. Taxing AI could undermine that.

So far the Government’s strategy is to accelerate AI adoption, not tax it and to position the UK as a pro-AI economy.

AI is becoming a survival tool for small and micro businesses, used to cut costs, reduce admin, and stay afloat. Once stabilised, small businesses use AI to scale, market, and innovate. Taxing AI growth would hit the smallest hardest. Large firms can absorb new taxes. Small firms can’t. Taxing AI now would slow its adoption by small businesses and penalise the businesses it helps most.