Entrepreneurs need relief from Budget cuts

Scotland's family-owned businesses play a vital role in the economy (Picture: Adobe)

Scotland’s business community is bracing itself for the new UK Government’s first Budget at the end of October which, the Prime Minister has warned, will be ‘painful.’ Labour has already ruled out income tax, national insurance or VAT rises in its election manifesto, leaving business leaders anxious about how they might be impacted as the Chancellor aims to fill a £22bn gap in public finances.

With the Government already planning to increase windfall taxes on oil and gas profits, I’m hearing growing concerns across the Scottish business community that key tax incentives which encourage entrepreneurism and drive economic growth could now be targeted.

This includes Business Asset Disposal Relief (BADR) and Business Property Relief (BPR), two key measures which have helped foster a sustainable entrepreneurial system in the UK.

Arveen Arabshahi is a corporate partner at law firm Davidson Chalmers Stewart​

BADR reduces the level of capital gains tax on the sale of business assets and has been a key measure in promoting business growth across the UK. This relief is important for many start-up founders and small business owners in Scotland as it enables them to secure a greater financial reward from the risk and hard work involved in creating, growing and ultimately selling a business.

BPR, which offers company owners relief from inheritance tax on the transfer of qualifying business assets, is another important enterprise incentive measure. It has helped many family businesses remain viable across generations by reducing the tax burden during ownership transitions. In key Scottish sectors including agriculture and food & drink, where businesses are often tied to significant property assets, BPR supports continuity by encouraging long-term investment and stability rather than short-term profit-seeking.

Any significant reductions in such reliefs could also have a disproportionately detrimental impact on Scotland’s economy, which is more reliant on SMEs and family-owned businesses compared with many other parts of the UK.

These typically smaller businesses often depend on key tax relief measures to help them manage growth, facilitate succession planning, and ensure long-term sustainability. Any moves to remove or diminish these supportive tax measures could force some businesses to downsize, delay their growth plans or sell out to larger corporations who may not retain a significant local presence.

Scotland’s geographic and demographic makeup also makes it more vulnerable to the effects of any cuts to entrepreneur-focused tax reliefs, which would have a particularly hard impact on rural businesses. This would include many companies within emerging sectors, such as renewable energy and technology, which rely heavily on entrepreneurship and local investment.

While appreciating the difficult budget balancing act facing the Chancellor, cutting these and other entrepreneurial incentive tax measures threatens to do more fiscal harm than good. Such a move would threaten economic growth in Scotland and throughout the UK, and could also drive highly motivated entrepreneurs to other more business-friendly countries including Ireland and Portugal which offer a more competitive corporate and personal tax regime for starting and growing a business. This risk of driving entrepreneurs away from the UK appears to be a more credible threat particularly in today’s highly mobile and digital economy.

As we await the Budget, the message from Scotland’s business community is clear: don't sacrifice the long-term growth of the UK economy for the sake of marginal short-term fiscal savings. Protecting these incentives is crucial for ensuring that the UK remains an attractive place for entrepreneurs to invest, innovate, and grow their businesses.