Autumn Budget 2024: Leading tech founders slam tax increases
British tech founders have slammed rises in capital gains tax (CGT) and national insurance contributions (NICs) confirmed by Chancellor Rachel Reeves in Wednesday’s Budget. The government has increased the lower rate of CGT from 10 to 18 per cent, and the higher rate from 20 to 24 per cent. It also hiked employers’ NICs by [...]
British tech founders have slammed rises in capital gains tax (CGT) and national insurance contributions (NICs) confirmed by Chancellor Rachel Reeves in Wednesday’s Budget.
The government has increased the lower rate of CGT from 10 to 18 per cent, and the higher rate from 20 to 24 per cent. It also hiked employers’ NICs by 1.2 per cent to 15 per cent.
Paul Taylor, founder and chief executive of $2.7bn banking software firm Thought Machine, said the latter of these levies would increase his company’s UK payroll spend by £800,000 per year and make it harder to hire people.
“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,” he said.
“Nearly all emerging tech businesses run on investor capital, and this increase sets them back on their path to profitability.”
“The US is a model of where the UK needs to be.”
Taylor added that the increase in CGT is “a tax on risk-takers” that would “discourage talent from working in the tech sector”.
“CGT increases mean the potential value of the shares they own will now be considerably lower, thus reducing the incentive for top talent to join high-growth and tech businesses, which is the future growth engine of the UK,” he said.
Taylor, who told City AM last month that he wanted to list Thought Machine on the London Stock Exchange, said the environment for start-ups in the US is “a model of where the UK needs to be”.
The Budget raised taxes by £40bn, Reeves said, as Labour tries to plug an alleged £22bn “black hole” in the public finances.
Entrepreneur exodus warning
CGT is levied on the increase in the value of an asset between its purchase and sale, including company shares. It was widely expected to rise, although Reeves did not yank it up as far as the highest predictions of 39 per cent.
But some founders have expressed concerns that the tax changes could nevertheless stifle innovation, block talent acquisition and ultimately discourage new ventures within the UK.
Charles McManus, CEO of fintech ClearBank, said the combination of a rise in CGT and NICs could have a “significant knock-on effect in terms of the number of entrepreneurs establishing businesses in the UK”.
He added that the double whammy could also exacerbate “the challenges we have already seen around UK businesses listing in other markets” – after a slew of firms have snubbed London IPOs in recent years.
“Starting and scaling a business requires ingenuity, grit and determination – as well as taking a major risk,” he said.
“And we support any government that rewards that risk by creating an environment where entrepreneurs have access to the best investors, advice and scaling opportunities available.”
The CEO of car marketplace Motorway, Tom Leathes, added that “entrepreneurs thrive on incentives that reward risk” and increasing CGT would make scaling and reinvesting in tech companies “significantly less attractive”.
Pre-budget expectations centred on speculations that hikes to CGT, NICs and Business Asset Disposal Relief would hamper the growth trajectory of tech start-ups.
Some said the changes might discourage both investors, who may look at alternative markets and countries to invest, and founders, as tax burdens on stock options and other incentives increase.
The crunch of new government policies could even drive a mass exodus of UK founders, a fintech industry group warned ahead of the Budget – although this has been dismissed by others as “rhetoric”, especially now the hike was not as high as expected.
Phill Robinson, CEO of London-based founder network Boardwave, nevertheless agreed that the increases on capital gains tax “will hit the entrepreneurs that fuel our software industry, particularly hard,” and the carried interest reform will also impact investors.
“As a fast-moving high growth sector, that requires a high level of risk for both founders and investors and – on balance – the measures announced today will change the risk/reward calculations for both,” he said.
In her speech to Parliament, Reeves said the UK would still have the lowest capital gains tax rate of any European G7 economy.
On a more favourable note, Philip Belamant, co-founder and CEO of Zilch, said the $2bn buy-now pay-later provider’s “initial response is positive”.
“While we’ll all absorb slight tax increases, the UK remains a top G7 competitor and the third-largest tech market on the planet,” he added.
“Clear communication with business about long-term plans is key to avoid the ‘boiling frog’ scenario, where incremental taxes could erode our edge over time.”