At The Solve Co, we have experienced a significant rise in enquiries compared to this time last year, with many business owners expressing concerns about the uncertainty surrounding the upcoming Autumn Budget 2024. The potential changes, particularly the increase in Capital Gains Tax (CGT), higher fuel duty, and alterations to employer pension contributions, could have far-reaching consequences for UK businesses, especially small and medium-sized enterprises (SMEs).
Increased Capital Gains Tax (CGT)
A key area of concern is the potential rise in CGT, which may affect business owners looking to exit or sell assets. Currently, those with more than £25,000 in assets can consider a Members Voluntary Liquidation (MVL) if they wish to close a solvent business. An MVL allows for capital distributions, which are currently taxed at a lower rate than income, with qualifying business owners benefiting from Entrepreneurs’ Relief (Business Asset Disposal Relief). This relief allows them to pay a 10% flat rate on gains. Any reduction or removal of this relief, coupled with increased CGT rates, may stop entrepreneurs from investing in new businesses. We have already seen a huge increase in businesses closing in advance of the potential change and this will mean job losses as just one of the many consequences.
Higher Fuel Duty
Rising fuel duty will further strain operational costs for many businesses, particularly those reliant on transportation or logistics. For SMEs, where margins are already tight, these additional expenses cannot easily be passed on to customers, who are themselves struggling with higher costs. This puts SMEs at a disadvantage compared to larger corporations that can absorb higher costs through economies of scale. As insolvency practitioners, we are already seeing more businesses seeking advice on managing cash flow as operational costs have risen over recent years, and we are keen to understand what support the government will put in place for SMEs.
Changes to the Rules on the Taxation of Employer Pension Contributions
For businesses, particularly SMEs with limited margins, the potential increase in tax on employer pension contributions will have a negative impact because they will significantly raise payroll costs. If the proposed changes proceed, employers would be required to pay National Insurance contributions on the amounts they contribute to their employees’ pension schemes. Without corresponding productivity growth or revenue increases, this could force businesses to reconsider their benefits packages, such as enhanced pension offerings. These increased costs may further strain companies already struggling to meet payroll and other financial obligations, potentially pushing them closer to insolvency and leading to job losses.
Impact on Business Investment
Historically, investors have been willing to take risks on businesses, knowing they could exit and benefit from favourable tax treatment on their gains. If the CGT rate is aligned with income tax rates, or if Entrepreneurs’ Relief is reduced or removed, investors may be less inclined to invest in businesses, opting instead to look abroad. This could have long-term negative effects on entrepreneurship in the UK.
Conclusion
The upcoming Budget has the potential to exacerbate existing financial pressures on UK businesses. With the economy still recovering from COVID-19 and the challenges posed by Brexit, these changes could be the tipping point for many SMEs. At The Insolvency Company, we are preparing for a further increase in businesses seeking advice on restructuring, voluntary arrangements, or even liquidation, as they navigate the higher operational and tax burdens. While we hope for measures to support SMEs, the current outlook suggests that the proposed changes will make survival increasingly difficult for many businesses.