The Prime Minister has already warned that the autumn budget held on 30 October 2024 will be ‘painful’ and that ‘big asks’ will be made of the public. Labour’s manifesto pledged not to increase income taxes, so we can expect other taxes to be in the firing line – for example inheritance tax and stamp duties may be impacted.
However, a rise in Capital Gains Tax (CGT) rates is expected, as it is widely believed that lower CGT rates benefit the wealthy.
A rise in CGT could be achieved in different ways, such as removing the basic rate, increasing rates across the board, or removing some CGT reliefs.
Business Asset Disposal Relief is popular for tech entrepreneurs as it currently allows capital gains on disposal of business assets to be taxed at a low rate of 10%. The Government could remove the lifetime allowance of £1 million or cut the relief altogether.
Increasing CGT could significantly impact the tech sector, particularly for entrepreneurs who have scaled up their companies and are looking to exit in the short or medium term. For this reason, the Federation of Small Businesses has warned the Government that going about raising CGT in the wrong way could seriously impact plans to grow the UK economy as it may lead to business owners looking to take or start up their businesses overseas.
Cuts to AI plans
The Department for Science, Innovation, and Technology announced in August that £1.3bn of investment in UK tech and AI projects had been shelved due to a lack of available funding. Instead, the AI Opportunities Action Plan has been launched, which aims to identify how the UK can best invest in computing infrastructure and AI.
This has led to accusations that the new Government has ‘low’ ambitions for the UK tech sector. We strongly hope that there is better news regarding investing in the sector in the autumn budget.
Investment in HMRC
The Labour Party pledged before the election that they would tackle the tax gap (the difference between tax that should be paid and tax that has been paid to HMRC) by investing in HMRC and specifically targeting tax avoiders. However, the 2022/23 tax gap figures that have recently been published overwhelmingly demonstrate that small businesses account for the majority of the tax gap, with 60% (approximately £24 billion) of lost tax in 2022/23.
Approximately one-third of all corporation tax due by small businesses was not paid to HMRC in 2022/23. HMRC have customer compliance schemes in place to support medium and large-sized businesses, and it may be argued that being under-resourced has led HMRC to steer focus away from smaller customers towards those with bigger liabilities. This may now change in light of these statistics. If HMRC diverts attention to smaller businesses, this will inevitably capture start-up and scale-up tech companies. It’s therefore important to remain compliant.
Non-doms
We hope that the autumn budget will flesh out the Government’s plans for abolishing the non-domicile regime, due to take effect from April 2025. There has been concern that increasing income taxes for foreign nationals by removing the non-dom regime may reduce investment in the UK. It may also contribute to a skills shortage which could impact tech businesses looking to hire in the UK over time.
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