Britain’s small and medium-sized businesses have been dealt another blow as corporate lawyers, financial planners and founders point to what they describe as a “continued tax grab on SMEs” that is quietly eroding the benefits of starting a business in the UK.
From April 6, Business Asset Disposal Relief (BADR), previously known by the more flattering name Entrepreneurs’ Relief, rose from 14 per cent to 18 per cent on the first £1m of qualifying winnings. It is the latest step in a long move away from the policy’s original rules, when entrepreneurs paid just 10 per cent on lifetime profits of up to £10 million. Meanwhile, the rate has increased by 80 percent in the last decade, increasing by 28 percent in this single adjustment alone.
For a generation of owners and managers who have poured sweat and capital into their companies over the past twenty years, the math is becoming increasingly difficult to understand. And in the words of one consultant: “If we ask ourselves why there are so few homegrown success stories, this is part of the answer.”
Martin Rayner, director at Compton Financial Services, argues that the latest move cannot be viewed in isolation. “BADR has increased 80 percent over the last decade and an additional 28 percent with this latest change alone. This is not a one-time adjustment, but an ever-increasing tax on business success,” he said.
“And this does not exist in isolation. Employer NI increases and minimum wage increases that impact pay structures, not just the bottom tier, are already squeezing owners before they even consider exiting.”
Rayner is blunt about the wider implications. “SMEs represent 99.9 per cent of all UK businesses. They are the backbone of this economy and the starting point of every large business. The risks of starting and growing a business are constantly increasing, while the rewards are decreasing.”
For Scott Gallacher, director of Leicester-based financial consultancy Rowley Turton, the change comes with a tangible human cost, measured not in pounds but in years.
“Changes like the increase from 14 percent to 18 percent could result in some business owners having to work an extra year just to stand still,” he said. “When you add this to the earlier 10 percent move away, the cumulative impact becomes much more significant.”
On a £1 million sale, moving from 10 per cent to 18 per cent means an extra £80,000 donated to the Treasury, “the equivalent of about two extra years of work for many, only to end up in the same situation,” Gallacher noted.
He warned against viewing seven-figure departures as evidence of extravagance: “While £1m may sound like a big number, in today’s terms it often represents a lifetime’s work rather than extraordinary wealth.”
Steven Mather, lawyer and director at Steven Mather Solicitor in Leicester, warned that the bite was even sharper for transactions above the £1 million threshold.
“Three years ago a sale for £5 million would have cost £900,000 in tax. Now the same sale costs £1.14 million, almost a quarter of a million more in tax. And for what? Nothing,” he said.
“A business owner who worked really hard over the years and paid all the taxes on the side until he got to the point where he got out and had to pay another huge amount to the government.”
For Mather, the contrast with the regime’s original architecture is stark. “When I started, BADR was called Entrepreneurs’ Relief and cost £10 million at 10 per cent.
Graham Nicoll, financial planner at NCL Wealth Partners, describes the change as a familiar treasury technique in a new guise.
“On paper a 4 per cent increase may not look drastic, but in reality for every million pounds of sales proceeds an additional £40,000 goes to HMRC, which is significant,” he said.
“This has the same impact as a fiscal burden, as tax relief becomes less generous over time, tax rates rise, and lifetime limits have fallen dramatically. Changes in tax impact such as this will influence business owners’ considerations of timing, succession planning, structure, and more.”
He says his starting point with clients is no longer about the deal, but about the destination. “What do you want to achieve, what do you want life after the deal to look like and how much do you have to do to achieve it? Solid cash flow planning is the basis of effective exit planning discussions.”
For Colette Mason, author and AI consultant at Clever Clogs AI in London, the contradiction at the heart of government policy can no longer be ignored.
“Just last week the government launched the £500m State AI Fund, encouraging AI entrepreneurs to start, grow and stay in the UK. But why should you do that when the exit is so heavily taxed?” she asked.
“You can’t put public money into helping founders build and then squeeze out what they keep after years of graft to make it work.”
Her conclusion is increasingly heard in boardrooms and breakfast meetings from Shoreditch to Solihull: “At some point people do the math and build somewhere where they can keep the reward, and that really isn’t Britain with the constant tax attack on SMEs.”
For a government that has staked much of its growth narrative on the dynamism of British entrepreneurs, the message from these entrepreneurs is clear. Build the company, take the risk, hire the employees, pay the taxes, and then watch the reward shrink every April. It is, advisers warn, a model that initially flatters HMRC’s spreadsheet but quietly empties the pipeline of the very success stories Britain supposedly wants to celebrate.
