Private enterprises navigating a tougher tax landscape

The tax burden for UK businesses rose quite significantly in the wake of last year’s Autumn Budget which saw employers’ national insurance contributions increase from April. At the same time, for private businesses and entrepreneurs, major changes in relation to inheritance tax poses questions around succession and wealth preservation for family-owned businesses.

The UK is not alone in increasing its tax take as countries grapple with globally subdued rates of economic growth, changing demographics and life expectancies, rising demands on public services, and the changing dynamics arising from the explosion of the digital economy.

While tax increases are never welcome, the UK tax regime for businesses is broadly competitive with other countries. The all-important rate of corporation tax (25%) sits somewhere in the pack across EU and developed economies.

Grant Ashbrook

Partner, Tax and Legal. Growth lead for KPE and IGH

KPMG in the UK

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Tax rise concerns

It is noticeable in our latest private enterprise Pulse survey of 1,500 businesses that confidence remains high. Over 90% of private enterprise leaders are positive about their future prospects. The picture that emerges is one of optimism and ambition – so have businesses simply absorbed tax and employment cost increases and renewed themselves for the journey?

It’s not quite as simple as that. When we look into our research findings, there is a clear thread of worry and concern about possible future tax rises. When asked about factors with the biggest potential negative impacts on their business going forward, further tax rises in the forthcoming Autumn Budget and rising employment costs were both cited by over 30% of respondents, second only behind inflation (45%). Measures to protect business profitability were also the second most widely wished for item in this autumn’s Budget – and in some cases (such as amongst family-owned businesses and the retail sector) it was at number one.

My own view is that tax increases in some form are almost inevitable in the Budget – but these will most likely be on the personal side in the shape of ‘stealth’ taxes where thresholds are increased at less than the rate of wage inflation. High earners (above £150k) may also see a reduction in some tax reliefs such as for investments into pensions.

Changes feeding through

On the corporate side, it would be a surprise if there were any further increases to employment taxes or indeed further tightening of tax rules to restrict options on business sale. The changes announced in last year’s Budget are still working through the system and have generated an immense volume of queries and conversations with clients. . As business owners and entrepreneurs continue to plan for the future we are discussing the options available for business continuation through partial exist, the use of efficient Employee Ownership trusts as well as the traditional listed v PE sale.

Another area of change has been around the non-dom regime, which is significant to the private enterprise space as many non-doms are entrepreneurs who have invested into the UK. The changes coming into play have certainly led to an increase in individuals wanting to discuss and better understand the situation and see what options there are.

Incentivising technology investment in the digital age

The Chancellor may have limited room for tax giveaways in her Autumn Budget, but the area where I am really hoping to see some – as they would pay for themselves many times over – is for investment in technology. There is no doubt that this is the leading area of expected future business spend, for both private enterprises and large corporates. In our research, technology is the clear priority for investment, with 67% of business leaders citing it, far ahead of workforce & skills in second place (36%). Reliefs and allowances on technology spend could significantly support the charge as well as lift the UK’s reputation as a competitive investment landscape for business. If this was extended to overseas businesses’ investments (for example, building a data centre in the UK) then it could magnify the UK’s attractiveness as a place to invest on the global stage. Tax is a great way of attracting investment. A tax regime built for the digital age would boost productivity and give the UK a powerful competitive edge.

Thinking globally, another significant tax-related area is international trade, notably tariffs. The new US tariff regime certainly doesn’t help UK businesses on the face of it, although the UK trade deal helps limit the effects and does provide a competitive edge over others. What it underlines more broadly is that supply chain tax efficiency has become another key issue. Companies should be reviewing their international trade patterns and the sourcing of their goods through their supply chains to assess whether more cost- and tax-efficient models are possible.

Next steps

As ever in the tax world, there are multiple moving parts – and unknowns as well as certainties.

This all makes understanding and taking positive action over your tax affairs a key strategic item for private enterprises as they seek to grow their businesses and create value in the economy. The noise and speculation will of course grow as the Autumn Budget approaches – but we are here to help clients make sense of the signals and focus on the areas that matter.

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