A rise in UK capital gains tax would be a ‘hammer blow’ for start-ups, according to one of Britain’s top tech leaders.
Entrepreneurs and investors have raised concerns about a possible increase in capital gains tax in Britain’s October budget to a top rate of 45 percent, saying it could drive investment and start-ups overseas.
The Labor Party wants to fill a £22 billion fiscal hole left by the previous Conservative government, leading to speculation that capital gains will be targeted by the Treasury.
Paul Taylor, CEO and founder of cloud-based banking technology platform Thought machinesaid: “There is real dismay in the startup community, people can’t believe it.”
Startups often offer stock to staff instead of high salaries as an incentive to join.
The tax hike could see start-ups face 45 percent capital gains tax when they sell shares, compared to the current rate of 20 which could be as low as 10 percent with further tax relief.
Taylor said:
“My biggest concern is with staff because under the EMI (Enterprise Management Incentive) scheme, staff share options are valued as capital gains.
“It was introduced by the last Labor government in about 2001. It’s a very, very important thing to give them a fair reward. It would be a real blow to them.
“And the very difficult thing is that it is retrospective. They have been operating for years under the basis that they pay 20 percent to increase it to 45 percent is quite bad.”
Speaking more broadly about a possible rise in capital gains tax, Taylor said:
“It’s bad for the investment community. We have investors from the UK, we have investors from abroad. You get decent tax breaks, why would anyone do that if the rate is going to go up a lot?”
Thought machine is one of the stars of the London fintech scene.
The unicorn, last valued at £2.2bn in its last funding round in 2022, provides cloud-based banking services for the likes of Lloyds, Standard Chartered and JP Morgan.
Taylor said its services are popular in Europe, saying the UK is a key market, and has also sold in the Nordics, Italy and Eastern Europe.
He said: “I think by banks that have signed up, the UK is our number one.”
Last year, Thought Machine made job cuts of between 50 and 70 staff in a cost-cutting exercise.
Taylor said there have been no job cuts since then and no plans for job cuts this year.
The founder also touched on the use of GenAI and how it is used, if at all, at Thought Machine.
He said that GenAI would not lead to a reduction in staff at Thought Machine since, unlike Klarna, Thought Machine did not have a large customer support team.
Asked how Thought Machine staff use GenAI tools, Taylor said “barely at all”.
He added:
“We tried it in a few places, we tried it here, we tried it there. It just doesn’t really fit.
“When you’re not a programmer, getting AI to write a website is a huge boost. It is very, very productive. But if you are an expert programmer, it rarely does it better.
“It is not good to bleed fringes. And what we’re doing here is booming platform technology.”