A lobby group representing Britain’s start-ups will this week warn Rachel Reeves against a limited liability company (LLP) tax sweep, arguing it would hit backers of Britain’s most innovative companies.
Sky News has seen a letter sent to the chancellor on Monday, in which the Startup Coalition claims that imposing employer National Insurance Contributions (NICs) on venture capital funds could make UK fund launches “commercially unviable”.
Venture capitalists, along with private equity firms, law firms and accountants, were alarmed last week by speculation that Ms. Reeves planned to raise almost £2 billion by taxing LLPs in this way.
Treasury officials are said to be in talks over the move ahead of next month’s crucial budget statement.
“Combined with last year’s carried interest reforms, this is the second budget in which venture capital risks collateral damage from policies that are not designed for this purpose – and the combination of these changes could increase the overall tax burden on venture capital by approximately 30%,” Dom Hallas, executive director of the Startup Coalition, says in the letter.
“Any additional taxes on partnership profits directly reduce the working capital available to investment teams.
Please use Chrome browser for a more accessible video player
Has Rachel Reeves changed her tune on the budget?
“For emerging managers, who often operate at or below cost for their first funds, these changes could make UK fund launches commercially unviable.
“For more established funds, they would accelerate an existing trend: partners and decision-makers are moving to other jurisdictions.
“Fewer UK partners means fewer meetings with UK founders, fewer terms signed here and less capital flowing to high-growth UK businesses. »
Learn more:
Reducing cash ISA allowance could backfire, MPs warn
Be bold with tax rises or risk ‘Groundhog Day’, Chancellor says
The group’s intervention risks embarrassing the Chancellor, given her commitment on Friday to “boost innovation” with a new unit aimed at so-called “scale-up” companies.
Mr Hallas’ letter will call on the Chancellor to protect venture capital fund structures from new taxes “while allowing the Government to make changes to the wider LLP regime or similar areas”.
It will also urge it to “differentiate (venture capital) from private equity in the tax system, aligning treatment with its public interest role in innovation”.