Autumn Budget Rewards Risk-Takers But Creates Two Classes Of Founder

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Chancellor John Healey’s first Budget will hand high-growth founders the most generous tax relief since 2020 but halves the lifetime limit on the relief many other business owners rely on, according to accountancy and business advisory firm Johnston Carmichael.

From 6 April 2027, qualifying founders of high-growth, innovative companies will benefit from a new 10%, compared with the standard 24% rate, on up to £10m of lifetime gains. Eligibility will be set following a technical consultation, but the conditions are likely to be stringent.

On the same date, the lifetime limit for Business Asset Disposal Relief (BADR), which reduces the CGT rate to 18%, is halved from £1m to £500,000. A founder who qualifies for the new relief on the full £10m could save up to £1.4m while those who rely on BADR will see their maximum saving fall from £60,000 to £30,000. The Treasury says three in four BADR claimants will be unaffected.

Alex Docherty, Partner and Head of Private Client Tax at Johnston Carmichael, said:

“Ahead of the Budget, we said founders needed a relief that properly rewards the risk of building a business. For high-growth, innovative companies, the Chancellor has delivered exactly that. A 10% rate on up to £10m tells anyone building the next big British business that the UK wants them to do it here."

“But this Budget has created two classes of founder. The engineering firm, the hotel, the family business that sustain jobs in local communities – these are the backbone of the economy, and most are unlikely to count as high-growth and innovative. The cut to Business Asset Disposal Relief affects exactly the owners who spent a lifetime building something substantial. The consultation on who qualifies for Founders’ Relief must address that divide.”

On business tax, the government reaffirmed its Corporate Tax Roadmap. The main rate of corporation tax remains capped at 25%, and full expensing continues for qualifying expenditure. But the balance of capital allowances has shifted. The main First Year Allowance rises from 40% to 50% for qualifying expenditure from 1 January 2027, while the main Writing Down Allowance falls from 14% to 12% from April 2027.

John McAuslin, Partner and Head of Corporate Tax at Johnston Carmichael, said:

“Keeping the 25% cap and full expensing gives businesses planning significant capital investment some continuity. But spending that doesn’t qualify for full expensing will now be relieved more slowly. Any business contemplating material capital expenditure should look carefully at the timing and nature of that investment, and at whether it can qualify for full expensing or the enhanced First Year Allowance.”

David Ward, Partner and Head of Tax at Johnston Carmichael, urged owner-managed and family businesses to watch a potentially significant reform of how company distributions are taxed. The proposals aim to stop profit extraction being structured to obtain more favourable tax treatment, with draft legislation due for consultation in 2027 and the new rules expected from April 2028.

He said:

“The government has committed to protecting capital treatment for genuine changes in ownership, including family business succession, and intends to expand demerger relief in some circumstances. These commitments are welcome, but the detailed rules will be critical in determining how effectively legitimate succession, shareholder exits and commercial reorganisations are protected.”

David also pointed to the sector-specific taxes funding targeted support. The Bank Corporation Tax Surcharge doubles from 3% to 6% for 15 months to help pay for lower energy bills, while Machine Games Duty on higher-stake machines rises from 20% to 25% from April 2027 to help fund a real-terms freeze in business rates for retail, hospitality and leisure properties in England.

It remains to be seen whether Scotland will follow. The Scottish Government will receive an additional £600m through the Barnett formula over the Spending Review period and sets its own Budget on 3 December.

David added:

“The Chancellor has promised breathing space now and fresh hope for the years ahead. But what businesses need most from a Budget is long-term certainty, and once again the rules have changed for people trying to plan ahead. Business Asset Disposal Relief is a case in point. Since 2020, the lifetime limit has gone from £10m to £1m and now to £500,000, and the rate has nearly doubled from 10% to 18%."

“Businesses are built over a lifetime, not a single Parliament. Owners need to plan succession years in advance, and repeated changes to the tax treatment of business disposals make that planning more difficult."

“Moves such as asking Ofgem to scrap gas standing charges are welcome, but they’re tinkering at the edges. A tax system set for the long term and then left alone would do far more for investment and growth than another round of adjustments.”

For more information on Johnston Carmichael, please visit  here.

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Dec 16, 2024

3 min read

Business confidence among Britain’s manufacturers has dipped at the sharpest rate since the pandemic due to rocketing costs according to a major survey published today by Make UK and business advisory firm BDO.– Make UK/BDO survey

Key Findings:

Output returns to levels of a year ago
Domestic market remains weak compared to exports
Recruitment and investment activity stable
Make Work Pay reforms to result in big cost increases
Manufacturing forecast to contract in 2024, 0.7% growth in 2025

The Make UK/BDO Manufacturing Outlook Q4 survey shows that while output and orders remain positive, with recruitment and investment intentions stable, the mood among companies has darkened markedly since the last survey when almost six in ten companies (58%) saw a brighter economic outlook under a new Government.

Furthermore, the sharp fall in business confidence among manufacturers contrasts with the Q3 survey when, bar the immediate post covid recovery, it reached its highest level in a decade.

According to the latest survey, almost three quarters (70%) of manufacturers have seen their costs increase by up to a fifth in the last year, while almost one in ten (8%) had seen their costs increase by up to a half. In particular, the survey shows almost nine in ten companies (86%) will see their business costs increase specifically as a result of the new employment reforms, with almost half of companies (44%) saying the increase will be ‘significant’.

With the Budget set to add substantial extra business costs, in particular the changes to National Insurance Contributions, Make UK has cut its growth forecasts with manufacturing contracting by -0.2% this year and growing by just 0.7% in 2025.

In response, Make UK is urging the Government to look at measures which might help alleviate the impact of rising costs, in particular reforms to business rates and current incentives to decarbonise.

Commenting, Fhaheen Khan, Senior Economist at Make UK, said: “Having faced a cost creep for most of the year, manufacturers are now facing a cost crisis which has brought a sharp dip in their confidence. While overall conditions had begun to gradually improve during the year, the Budget has brought this to a shuddering halt, with the substantial increase in National Insurance Contributions potentially the straw that might break the camel’s back for some. There is now an urgent need for Government to look at other measures which might mitigate the impact of the rocketing costs that businesses are now facing.”

Richard Austin, Head of Manufacturing at BDO, added: “While manufacturers have welcomed the Government’s Industrial Strategy green paper, optimism across the sector is declining, driven by increased input costs, the implications of the latest budget on employment costs and lacklustre domestic demand."

"An overlay of a turbulent geo-political landscape and talk of potential tariffs adds to future uncertainty in the short to medium term. Increasing investment in improving productivity is vital now more than ever to maintain stability and offer opportunities for growth in the sector.”

According to the survey, the balance on output rose to +20% from -2% in the last quarter, with total orders following a similar pattern, up to +16% from +7% in Q3. Export orders (+10%) exceeded UK orders (0%) but, the pattern since the pandemic when UK orders have consistently exceeded export orders is forecast to resume in the next quarter at +8% and +7% respectively.

Having gone negative for the first time in four quarters in Q3, recruitment intentions turned positive at +8%, with investment intentions remaining stable at +10%.

Make UK is forecasting that manufacturing will contract by -0.2% in 2024, down from a forecast of +0.5% in the last quarter, before growing by 0.7% in 2025. GDP is forecast to grow by 0.7% in 2024 and 1.4% in 2025.

The survey of 303 companies was carried out between 28 October and 27 November.

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