Small start-ups will feel the financial sting of the Budget

Simon Gleeson, Partner says

The Chancellor missed the opportunity in yesterday’s Budget to seize on the success of the 2024 inaugural International Investment Summit. Extending tax relief schemes and investment won’t be enough to sooth the sting of the Budget’s sharp tax rises.

Her announcement of technology investment in HMRC, the NHS and other government agencies will be well received by public IT sector consulting, but not smaller entrepreneurial boot-strapped start-ups. They will now pay more to hire, more on NIC and more tax in CGT windfalls on stock option gains, with the basic rate tax-payer jumping from 10% to 18%.

The changes to NIC, CGT and Business Asset Disposal Relief (BADR) will ultimately impact small business owners and the competitiveness of the UK, significantly impacting its appeal to global markets which Chancellor Reeves acknowledged herself that the UK had ‘fallen behind in the race for new jobs in new industries and new technology’.

Pre-Budget the much-hyped misinformation and leaks to the media on potential CGT increases to 35-39% overshadowed the announcements of £63bn in foreign direct investment in the U.K, forcing an unprecedented intervention by the Prime Minister to reassure entrepreneurs and the tech community.

The threat of a CGT rise was still enough to prompt 66 fintech leaders to sign a letter warning of an exodus if CGT rates did increase, highlighting the anxiety within the sector.

The confirmed extension of the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) schemes to 2035 gave more certainty to overseas investors that Britain supports early-stage innovation, research and new technologies. This was further underpinned by a commitment that Labour will invest £1bn in aerospace, £2bn in automotive to support electric vehicles, and £500m for life sciences.

Government research and development spending will reach £20.4bn in 2025-26, including £6.1bn in sectors such as engineering, biotechnology and medical science. R&D tax incentives remain on the table, but smaller entrepreneurial start-ups will still the pinch of the Budget’s tax rises.

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