UK tax advisors tell Sifted they’re seeing big hikes in the number of enquiries from startup founders, as many consider overseas relocation ahead of potential tax changes in the Budget on October 30.
Amid reports of wide ranging tax increases — including capital gains tax on the sale of shares and employers national insurance contributions — as UK finance minister Rachel Reeves looks to close a £40bn funding gap, tax experts say they’ve seen a sharp rise in founders weighing up relocation options.
“The volume of activity over the last couple of months and particularly the last few weeks has been off the scale — unprecedented,” says Alan Smith, founder of wealth management company Capital Partners, which advises entrepreneurs on matters like tax around business sales.
The budget could impact UK founders in a number of ways.
Reports have emerged that Reeves is considering scrapping Business Asset Disposal Relief (BADR) — previously known as Entrepreneurs’ Relief — which limits tax on exit takings of up to £1m to 10% (capital gains tax on the sale of business shares is normally 20% without the relief). The government is also expected to raise up to £20bn by increasing companies’ national insurance (NI) contributions, increasing employment costs per head
“Some founders are already making plans to relocate overseas to places like Dubai and Singapore when they do exit over the next year or two,” adds Smith. “I’ve also spoken with other founders within the UK and overseas who were planning to start businesses but are now putting everything on hold and possibly looking for more business-friendly locations to start, get funded and grow.”
Relocation, relocation, relocation
Sarah Malter, founder of Kapitalise, a company which helps startups claim R&D tax credits, says she’s seen a “massive increase” in clients asking about return on investment if they were to move their businesses overseas.
Those clients are in sectors like edtech, AI, blockchain, agritech, fintech and deeptech and have turnovers ranging between £2-£20m, she tells Sifted. Ireland is the most common location founders are considering, she adds, with startups also looking into countries like Portugal, Singapore and Cyprus.
While Reeves has signalled that she will maintain R&D tax credits (which gives tax rebates on the money companies spend on innovative research), founders are considering upping sticks as a result of reports of other tax hikes.
“The bigger they are, the more likely they are to consider outsourcing R&D roles as NI increases,” Malter tells Sifted. “A lot of [startup] owners are worried about multiple tax assaults at once with [reported rises in] capital gains tax, inheritance tax and even the rise in VAT for private schools is pushing ambitious entrepreneurs and their families out of the UK.”
Tax partner at Gravitas Tom Adcock also says he’s seen a “significant” increase in approaches from UK startup founders in recent months. “Clients are rushing through transactions, such as third-party sales to liquidations of businesses, to avoid the spectre of potential tax rises…I’ve spoken with many founders who have decided to leave the UK.”
Enquiries from startup founders about relocation have doubled or tripled in recent months, Angela Wood, managing director at tax consultancy ETC Tax, told Sifted in September.
Cyprus and Malta are being considered as destinations, Wood says, alongside cities in the UAE like Dubai. “As well as being very attractive from a tax point of view, [the UAE] has also invested heavily in real estate, infrastructure and technology to attract overseas investors and business owners.”
These sounds of alarm don’t tell the full story and many founders remain committed to the UK. The creator of the tech that powers Amazon Alexa recently told Sifted about his plans to build the first $1tn dollar company in the country, and companies like London-based Wayve have broken European funding records this year.
But in a time where the pull of the US and the Middle East is getting stronger for founders, London’s status as the capital of European tech is looking a little shakier as the entrepreneurial world awaits Reeves’ plans.
Read the orginal article: https://sifted.eu/articles/startup-tax-advisors-flooded-enquiries-news/
