As the UK braces for the 2024 Autumn Budget on 30 October, a growing number of fractional CFOs within the iFD Community have expressed concerns about the future of Labour’s tax policy and its impact on businesses as they attempt to fill a £22 billion ‘black hole’ in the nation’s finances. With economic uncertainty, tax changes remain the number one issue on the minds of these senior finance leaders.
In a recent survey, iFD asked its community of fractional CFOs to share their thoughts ahead of the budget.
In this blog, we explore the opinions voiced by members of the iFD Fractional CFO Community, what they anticipate from the upcoming budget and what they would like to see in Chancellor Rachel Reeves’ announcement.
“Our community of fractional CFOs are clearly worried about the impact of the upcoming budget on the businesses they support. They would like to see more support for innovation to enable growth and are concerned about the impact a rise in Capital Gains Tax would have on investment.”
Greg Eaton, Managing Director at Isosceles Finance
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iFD SURVEY UNVEILS KEY CONCERNS AHEAD OF AUTUMN BUDGET 2024
In this survey, our Fractional CFOs raised concerns over a range of potential tax changes and economic pressures that could emerge in this highly anticipated first budget statement from the new Labour Government. Their top concerns include:
- Increases in Corporation Tax and Capital Gains Tax: Many are worried that additional hikes will further squeeze profits and discourage investment, especially for businesses in the early growth phases.
- Increased staffing costs: Potential tax increases on salaries over £100,000 could drive up employment costs, making it more difficult for businesses to attract and retain top talent.
- Exodus of businesses leaving the UK: Some fractional CFOs fear that rising taxes and a lack of support for businesses could lead to more companies relocating overseas with more favourable tax environments and reducing the attractiveness of the UK as a base for international operations.
- Business rates reform: There is a strong desire to see reforms to business rates, which many consider outdated and burdensome for small and medium-sized businesses. “Will this budget tackle this need?” is the question on many CFOs’ lips.
- Improved tax breaks: Another theme among responding Fractional CFOs is their calls to see improvements in tax relief options, particularly for smaller businesses looking to scale.
- Enhancements of R&D Tax Credits: Several respondents are calling for an expansion of the R&D tax scheme allowances, which they believe is crucial for fostering innovation and growth in key sectors such as pharmaceuticals and biotechnology, manufacturing and engineering, technology, energy and environmental.
With Prime Minister Sir Keir Starmer already hinting that the Autumn Budget will be “painful” for many, the sentiment among CFOs within the iFD Community is one of increasing anxiety.
TAX INCREASES TOP LIST OF CFO COMMUNITY’S FEARS AHEAD OF OCTOBER BUDGET
According to the survey conducted by iFD, the prospect of higher taxes is by far the greatest concern.
Ahead of the Autumn Budget, the most pressing fear is an anticipated hike in Capital Gains Tax, with many reports suggesting that some form of increase is likely. Fractional CFOs managing businesses that rely on investment and growth capital fear that such changes could stifle business expansion. Alongside Capital Gains Tax, there is growing apprehension about an increase in Corporation Tax and Inheritance Tax, which many believe could further
One CFO reported that their biggest fear was “that the easy targets such as successful businesses/individuals will be targeted again, leading to them possibly moving away from the UK.”
This potential movement of businesses overseas could be compounded, many respondents claim, by further tax hikes down the line affecting those who are staying in the UK. However, reports suggest that an ‘Exit Tax’ could be put in place to try and manage this, although this could reduce the attractiveness of the UK as a base for international operations and complicate cross-border M&A transactions.
Other key concerns outlined by respondents to iFD’s recent survey were higher taxation on higher earners, increased staffing costs and reductions in research and development tax scheme allowances, something that most fractional CFOs in the study would like to see reformed.
However, despite the apprehension, several finance leaders remain optimistic, with one suggesting: “Unlike the past Labour governments, it seems that Starmer’s government will not just spend and give money away… so I’m less fearful than with other Labour governments in the past.”
FRACTIONAL CFOs CALL FOR R&D TAX IMPROVEMENTS AND BUSINESS RATES REFORM
Tweaks to the research and development tax scheme reliefs and allowances emerged as the most common request from fractional CFOs ahead of the announcement, especially among small businesses. Many respondents are calling for:
- Tax credits support for R&D to be strengthened
- Restoring tax relief to 100%, providing full relief on qualifying R&D expenditure
- Increased tax breaks for businesses investing in R&D, helping to foster innovation and growth
- Improved incentives for investing in research and development
Aside from R&D, business rates reform is also high on the wish list. Many fractional CFOs believe that the current business rates system is outdated and imposes a disproportionate burden on SMEs due to its reliance on property values rather than the performance of the business. The system places physical retailers at a disadvantage to e-commerce retailers and the rigidity of the system fails to adjust to economic pressures thus intensifying financial pressure on smaller businesses.
There are also calls for greater access to grants and investments, particularly in areas like skills training, education and green initiatives. Many respondents are keen to see more support for achieving climate change objectives, ensuring they can invest in sustainability while remaining financially viable.
As fractional CFOs continue to balance multiple demands, they are keeping a close watch on these key issues, preparing for a range of potential tax outcomes in the Autumn Budget. Many want relief, but for now, uncertainty remains.