What Would UK Tax Rises Mean For Startups?

Prime Minister Andy Burnham has said tax reform could be included in his long term economic plans. One proposal is a wealth tax on the UK’s richest households; a second option is bringing Capital Gains Tax into line with income tax rates.

Those proposals don’t just impact tax bills when it comes to startup founders. Many of them build businesses for years without taking high salaries, hoping that selling the company one day will reward the risk they accepted at the beginning. Because of that, startup founders in the UK want to see what would come next.

What Is Being Discussed Right Now?

According to The Guardian, academics Gabriel Zucman from the Paris School of Economics and Ben Tippet from King’s College London believe a new wealth tax could raise £10 billion a year. Their proposal would introduce a 2% minimum tax on households worth more than £100 million and would affect fewer than 1,000 of the UK’s richest households.

Burnham has also said Capital Gains Tax could become more aligned with income tax as one way of raising extra revenue. Speaking recently, he said he wanted people to feel “things are being done in the right way” and wanted to tax people “in a fair way” without creating fresh divisions in society.

The academics believe their proposal would target only extreme wealth. Their report says, “The objective is not to create a broad based wealth tax affecting millions of households but rather a focused tax on extreme wealth that can make billionaires pay the same tax rates as the rest, raise meaningful revenues and dampen runaway inequality.”

Gabriel Zucman said, “Given the small numbers of households that would be taxed, the UK government could implement this quickly.” Ben Tippet said, “The report shows that a well designed minimum tax on the very wealthiest households is a realistic, targeted reform that would make the UK’s tax system fairer while raising substantial revenues.”
 

Why Are Startup Founders Waiting To See What Happens?

Many founders say startup life looks very different from owning wealth. Building a business often means years of uncertainty, unpaid work and personal financial risk before there is any chance of an exit.

Sam North, Co-Founder and CEO of SCALE, said, “I’ve spent years watching founders in this country make huge personal sacrifices to build businesses that create jobs for others and growth in their local economy. They’ve remortgaged their houses, walked away from safe salaries, and ploughed years of unpaid work into something they believe in. If Andy Burnham is recalibrating the tax system, it needs to distinguish between that kind of risk taking and simply holding wealth.”

North said changes to Capital Gains Tax or Business Asset Disposal Relief would reach founders long before they reached the ultra wealthy. He said, “If Capital Gains Tax is equalised with income tax, or reliefs like Business Asset Disposal Relief are scrapped, the people who feel it first won’t just be the wealthy. It’ll be founders five years into building a company, betting everything on an exit that may never come, and the early employees who took equity instead of salary because they believed in the problem that company is trying to solve for society.

“If Burnham and Healey get this wrong, instead of taxing wealth, they’re going to tax ambition. Britain doesn’t need more people making the safe choice. Growth can only come from taking calculated risks.”

Could It Affect Investment And Hiring?

Founders also worry about what higher taxes could mean for young companies trying to grow. Early stage businesses often need every pound they can find to hire staff, build products and attract investment.

Nicholas Betts, Founder of ZERØTEC, said, “Further tax rises risk squeezing tech and AI start ups at precisely the point when they need the confidence and capital to invest further, recruit talent and scale. Speaking with other founders, there is great concern about the impact this would have in addition to significant existing upfront costs and limited early stage revenues.

“Any increase in the burden of hiring, investment or growth could slow innovation and make the UK less attractive to founders and investors at a time when tech and AI has never been so critical for governments around the world. The UK must play its next moves carefully to retain relevance as a centre for innovation. Any tax increase needs to be offset with greater investment in the UK’s startup infrastructure.”

North also believes geography is as important as tax policy, saying, “As for fairness, the government has to recognise that a founder building a business in Manchester isn’t the same as an investor sitting on an appreciating asset. Burnham knows growth starts in the regions. This is exactly why place matters in this debate, not just policy.”

Aidan Harbinson, Co-Founder at Horrible Brands Ltd. also commented, saying, “A UK tax rise would not automatically be bad news for startups, but we need to be very careful.

“Startups already face high costs, and limited access to capital, plus cash flow can be uncertain at the best of times with the current economic climate. Broad increases could make hiring harder and slow investment right at the point when young firms are most fragile.

“The real question is how much more would they need to pay and what the money is actually going towards. Since tax also funds the infrastructure startups depend on, better-funded services could ultimately help to reduce pressure on founders and employees while creating a stronger economy in which new businesses can grow.

“A better approach would protect early-stage businesses while asking larger multinationals and billionaires to contribute their fair share. I don’t believe that will trigger the mass exodus that people think it will either, but if some companies or individuals want to move away then let them go!

“The fairest model has to be progressive. Give startups the breathing room they need and close tax loopholes used by global corporations, then direct more public money into grants and regional investment. Growth should be supported, but its rewards should also be shared.”