As tax increases and economic pressures mount, many business owners are reassessing their futures. A recent survey by Arbuthnot Latham, set to be fully released in January 2025, highlights growing concerns among UK business owners about the impact of taxation on their decisions. According to the survey, 65% of business owners who recently sold their companies cited fears of tax rises as a factor accelerating their choice to exit, while 56% of those still in business said similar concerns might push them to sell sooner.
The rising costs of doing business are prompting many entrepreneurs to consider their options, with some contemplating selling, scaling down operations, or even closing down entirely. Small and medium-sized businesses, in particular, are feeling the pressure as operational costs rise and the economic landscape continues to shift. Experts warn that the combination of tax increases and market instability could lead to a surge in business exits, potentially reshaping the entrepreneurial environment in the near future.
Paul Clifton, Wealth Planning Director at Arbuthnot Latham, provided insight into the upcoming changes in the Labour Budget and their potential impact on businesses. Starting in April 2025, employers will face a 1.2% rise in National Insurance Contributions (NICs), taking the rate to 15%. The threshold for paying these contributions will be reduced to £5,000, potentially increasing wage costs for businesses. This could further strain small enterprises, and some businesses may pass these costs onto consumers. Clifton also noted that salary sacrifice pension schemes may become more appealing as a result.
While the government plans to maintain the corporation tax rate at 25% and preserve reliefs for capital investment and research and development (R&D), the increased tax burden from NICs and changes to relief structures could make it harder for businesses to thrive. Existing capital investment reliefs like the annual investment allowance and R&D incentives will remain unchanged to encourage long-term growth.
In addition to these measures, the National Living Wage will increase from £11.44 to £12.21 per hour for employees aged 21 and over starting in April 2025, which will add to the wage bills of businesses. Furthermore, the government plans to raise the capital gains tax on the performance fees of private equity fund managers from 28% to 32%, effective from April 2025.
The broader context of these changes includes a focus on raising revenue from wealthier individuals, as seen in the government’s approach to capital gains tax and inheritance tax relief. While it is important for business owners to avoid making rash decisions in response to these changes, the impact on financial plans should not be underestimated. Wealth management experts are available to guide business owners through these developments and their potential implications.
The economic landscape is shifting, and business owners are facing more challenges as they adapt to new tax regulations and market instability. As the full effects of these changes become clearer, it will be crucial for entrepreneurs to carefully consider their options and plan for the future.
Arbuthnot Banking Group PLC (LON:ARBB), trading as Arbuthnot Latham, provides private and commercial banking products and services in the United Kingdom. Founded in 1833, Arbuthnot Banking is based in London, United Kingdom.
