The Chancellor has simply delivered a trade-off budget which hikes taxes to increase government spending and is a far cry from a pro-business reset that firms need, said Liz Cameron, chief executive of Scottish Chambers of Commerce.
She added that the SCC called on the Exchequer to take serious, pro-growth measures, like targeted reductions in VAT, a reversal of last year’s “ill-thought-out” Employer NICs increase, and reform of the Energy Profits Levy to support the UK’s energy transition.
“It is disappointing and damaging that these opportunities for Scotland have fallen on deaf ears,” she said.
Employee Ownership Trusts
Capital gains tax relief on EOT disposals will reduce from 100% to 50%, causing some concern about the effect on enthusiasm for employee ownership.
Ritchie Whyte, partner and head of corporate and business advisory at Aberdein Considine, said: “Disposals of businesses by owners to Employee Ownership Trusts (EOTs) was gaining increased traction over the past few years.
“Following today’s Budget, changes to tax relief for disposals of shares to EOTs fundamentally alters the financial calculus for owners considering this succession route.
“What was previously a tax-free, straightforward exit is now subject to a materially higher tax burden. For many owners, this shift inevitably makes an EOT less attractive when compared to alternative succession or sale strategies.
Peter Turk, an adviser to EOTs at Knights, said a reduction in capital gains tax relief from 100% to 50% is not “entirely unanticipated” and the drop will still provide a “platform for growth” for business owners.
“EOTs were introduced to promote diversity and engagement in the UK economy, so curbing measures that support employee ownership may seem counterintuitive. That said, instances of abuse have occurred, and so reform is not entirely unanticipated.
“While there is no doubt this change will affect their attractiveness, even at 50% the relief is still substantial compared to other exit strategies.
“Our advice has always been that EOTs only work when driven by a genuine belief in employee ownership as a platform for growth – not simply tax savings. We therefore expect EOTs will continue to be an attractive option for many sellers.”
Enterprise incentives
David Ovens, joint managing director at business angel group Archangels, said: “The Chancellor’s decision to widen eligibility for, and extend, enterprise incentive schemes is a clear demonstration of support for the role which founders and investors play in economic growth.
“Both EIS and VCT have been instrumental in channelling patient capital into innovative businesses, and continuation of the schemes ensures we can keep backing ambitious founders with confidence.
“The three-year stamp duty holiday for new UK listings is a positive step toward making London more competitive as a listing destination.
“However, the real challenge for Scottish scale-ups remains building sufficient scale and market traction to reach IPO stage.”
Jason Hollands, managing director of wealth manager Evelyn Partners, said that buried in the Budget’s supporting documents is some disappointing news for tax incentivised investing.
“What we need now is implementation that matches the ambition, ensuring schemes like EIS and VCT work seamlessly in practice to keep capital flowing into the businesses that will drive economic growth.
“While the Chancellor has trumpeted measures to support growth companies, including plans to widen the remit of Venture Capital Trusts and Enterprise Investment Schemes so they can invest greater amounts in companies as they scale up, the sting in the tail is that the tax credits for investing in new shares issued by VCTs are to be reduced from 30% to 20%.
“This will materially reduce the incentives for investing in what will remain illiquid and higher risk investments. This is likely to deter many investors from backing these VCTs, especially as they can gain greater income tax relief of up to 45% on mainstream, less risky investments in pensions.”
LLPs
Olly Cheng, senior financial planning director at Rathbones, says: “The much-mooted LLP tax changes didn’t materialise.
“While such a measure might have raised additional revenue, it would have added to the burden on a group that we know already contributes significantly to the Treasury from our experiences working with clients in partnerships. The LLP structure exists for legal protection – not to avoid National Insurance.”
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