As tax rises and economic challenges mount, a significant portion of business owners are contemplating their future.
A new report by Arbuthnot Latham (due to be released in full in January 2025) has revealed some interesting statistics, focusing on UK business owners’ taxation concerns. Arbuthnot Latham’s survey reveals:
- 65% of those who have recently exited a business said the fear of tax rises accelerated their decision
- 56% of those still in business said the same concern would lead them to sell sooner
With the cost of doing business on the rise, many are weighing their options—whether that means selling, scaling down, or even closing their doors. The pressure is particularly intense for small and mid-sized enterprises, which are feeling the squeeze of higher operational costs and a shifting economic landscape.
Experts warn that the combination of tax hikes and ongoing market instability could lead to a wave of business exits, further altering the entrepreneurial ecosystem in the near future.
It’s worth noting, this survey was taken ahead of the budget and US election results and, as such, this concern is likely to have risen.
Paul Clifton, Wealth Planning Director at Arbuthnot Latham has shared how the Labour Budget will impact businesses:
National Insurance Contributions (NICs)
From April 2025, employers will see a 1.2% rise in NICs, taking the rate to 15%. The threshold for paying these contributions will also be reduced to £5,000. These changes are expected to raise £25 billion by the end of the forecast period but will increase wage costs for businesses. We could see a further negative impact if businesses decide to pass these costs on to consumers. These changes could make ‘salary sacrifice’ pension schemes more attractive.
Business Investments and Tax Reliefs
The main rate of corporation tax will remain at 25%, and the government has committed to providing stability by retaining existing reliefs for capital investment and research and development. However, the increased tax burden through NICs and changes in relief structures may challenge business growth.
Existing capital investment reliefs such as the annual investment allowance and research and development (R&D) incentives will remain intact. This aims to provide businesses with certainty and encourage long-term growth.
Minimum wage increase
The National Living Wage (NLW) for employees aged 21 and over will increase from £11.44 to £12.21 per hour from April 2025. This is part of the government’s effort to raise wages but will result in higher wage bills for businesses.
Private Equity ‘carried interest’
Capital gains tax will increase on the performance fees that private equity fund managers make when assets are sold, known as ’carried interest’, to 32% from April 2025. The rate is currently 28%.
From CGT increases and reduced IHT reliefs to the abolition of non-dom status, these measures underscore the government’s focus on raising revenues from “those with the broadest shoulders”, to echo Keir Starmer’s words.
While it is essential to avoid making hasty decisions, the changes outlined in the Budget may impactyour financial plans. Be reassured that our wealth management experts will take the time to understand the changes in more detail and the potential implications.
