Tech
Chancellor Rachel Reeves' tax hikes 'punish risk-takers and could stifle innovation'
2025-05-12 11:26:24
British tech entrepreneurs have criticised the increases in capital gains tax (CGT) and national insurance contributions (NICs) announced by Chancellor Rachel Reeves in the recent Budget.
The government has raised the lower rate of CGT from 10% to 18%, and the higher rate from 20% to 24%. Additionally, employers' NICs have been increased by 1.2 percentage points to 15%.
Paul Taylor, founder and CEO of the $2.7bn banking software company Thought Machine, expressed concerns that the rise in NICs would add £800,000 annually to his firm's UK payroll expenses and complicate recruitment efforts.
"Companies like ours will be less incentivised to grow once the contribution we have to pay, per employee, increases combined with forthcoming changes to employment legislation," he remarked.
"Nearly all emerging tech businesses run on investor capital, and this increase sets them back on their path to profitability.", as reported by City AM.
Furthermore, Taylor highlighted that the hike in CGT represents "a tax on risk-takers" and will "discourage talent from working in the tech sector".
"CGT increases mean the potential value of the shares they own will now be considerably lower, thus reducing the incentive for top talent to join high-growth and tech businesses, which is the future growth engine of the UK," he added.
Last month, Taylor communicated to City AM his ambitions to list Thought Machine on the London Stock Exchange, underscored by his belief that the US start-up scene serves as "a model of where the UK needs to be".
Labour's Reeves has pointed out that the Budget has introduced tax increases totalling £40bn in an effort to address what is claimed to be a £22bn "black hole" in public finances.
Capital Gains Tax (CGT), which taxes the profit made on the sale of an asset like company shares, was anticipated to increase. Although it didn't reach the speculated heights of 39 per cent, the increase has some founders worried over its possible dampening effect on innovation, hindrance to talent acquisition, and discouragement of new business ventures within the UK.
ClearBank CEO Charles McManus weighed in on the matter, stating that the combined hike in CGT and National Insurance Contributions (NICs) might significantly discourage entrepreneurs from establishing businesses in Britain.
McManus also highlighted concerns regarding more UK firms opting to list in markets outside London, exacerbating existing market trends witnessed in recent years.
"Starting and scaling a business requires ingenuity, grit and determination as well as taking a major risk," he commented.
"And we support any government that rewards that risk by creating an environment where entrepreneurs have access to the best investors, advice and scaling opportunities available."
Motorway CEO Tom Leathes expressed concerns, highlighting that "entrepreneurs thrive on incentives that reward risk" and warning that an increase in Capital Gains Tax (CGT) could render scaling and reinvesting in tech companies "significantly less attractive".
In the build-up to the Budget, there was speculation that potential rises in CGT, National Insurance Contributions (NICs), and Business Asset Disposal Relief might hinder the expansion pace of technology start-ups.
Voices within the sector suggested that these changes could deter investors, possibly causing them to seek alternative markets and countries for their investments, and might discourage founders due to heavier tax loads on stock options and other incentives.
A fintech industry group had forewarned of a potential mass departure of UK founders due to new government policies, although this alarm has been downplayed by some as merely "rhetoric", especially since the increases were not as steep as anticipated.
Phill Robinson, CEO of Boardwave, a London-based network for founders, concurred with the concern, arguing that the uptick in capital gains tax "will hit the entrepreneurs that fuel our software industry, particularly hard," adding that the reform regarding carried interest would also affect investors.
Robinson pointed out: "As a fast-moving high growth sector, that requires a high level of risk for both founders and investors and on balance the measures announced today will change the risk/reward calculations for both,".
During her address to Parliament, Reeves cited that even after these revisions, the UK would still have the lowest capital gains tax rate compared to its European G7 peers.
On a more optimistic note, Philip Belamant, co-founder and CEO of Zilch, the $2bn buy-now pay-later provider, expressed his initial response as positive. "While we'll all absorb slight tax increases, the UK remains a top G7 competitor and the third-largest tech market on the planet," he stated.
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