The latest government budget introduces significant tax changes, raising concerns among tech entrepreneurs in the UK.
- The lower rate of capital gains tax increased from 10% to 18%, while the higher rate rose from 20% to 24%.
- Employers’ National Insurance Contributions (NICs) have been raised by 1.2 percentage points, reaching 15%.
- Business leaders fear these changes may deter investment and stifle innovation in the UK’s tech sector.
- Despite concerns, some view the UK remains competitive and stress the importance of clear government communication.
The UK government’s recent budget announcement has sparked debate among business leaders, particularly within the tech sector. Significant changes to Capital Gains Tax (CGT) and employers’ National Insurance Contributions (NICs) have raised eyebrows. The lower rate of CGT has been increased from 10% to 18%, and the higher rate from 20% to 24%. Additionally, employers’ NICs have risen by 1.2 percentage points, reaching 15%.
Paul Taylor, the founder and CEO of Thought Machine, highlighted the financial strain these changes pose to businesses. According to Taylor, the NIC increase alone will add £800,000 annually to his company’s payroll expenses, challenging recruitment efforts and deterring growth. He remarked, “Companies like ours will be less incentivised to grow once the contribution we have to pay, per employee, increases combined with forthcoming changes to employment legislation.”
Concerns extend to the broader impact on investor-driven tech ventures. The hike in CGT is seen as a potential “tax on risk-takers,” reducing the appeal of stock options and equity incentives, crucial tools for attracting top talent in a competitive tech market. Taylor argued that the CGT increase diminishes the potential value of shares, discouraging talented individuals from joining and investing in high-growth tech businesses. He emphasized this could significantly slow the progress of what he sees as the UK’s future growth engine.
ClearBank CEO Charles McManus echoed these sentiments, warning that the combined tax hikes could deter entrepreneurs from establishing businesses in the UK. He noted the risk that more UK companies might opt to list in overseas markets, exacerbating existing trends. According to McManus, starting and scaling a business involves significant risk, and supportive government policies are essential in maintaining a thriving entrepreneurial environment.
Leaders in the tech community, including Motorway CEO Tom Leathes, have expressed fears that increased CGT could make scaling up and reinvesting in tech companies less attractive. Speculations of rising Business Asset Disposal Relief also fuelled concerns about the potential hindrance to tech start-ups’ growth. Observers fear these measures could lead investors to explore alternative markets outside the UK, directly impacting the tech sector’s expansion.
Despite these concerns, not all feedback is negative. Philip Belamant, co-founder and CEO of Zilch, maintained a cautiously optimistic stance, acknowledging the slight tax increases but affirming the UK’s status as a leading competitor among G7 nations. He stressed the importance of transparent communication between the government and businesses to prevent gradual tax increases from eroding the UK’s competitive advantage.
The changes in the budget raise concerns but highlight the ongoing conversation about balancing tax policies and maintaining the UK’s competitive edge.
