UK tax system for entrepreneurs has an image problem, warns BDO

The UK’s tax system for entrepreneurs is perceived as difficult to navigate, expensive to deal with and needs a fundamental overhaul, according to accountancy and business advisory firm BDO.

In its response to the Government’s call for evidence on tax support for entrepreneurs which closes on 28 February, BDO calls for a number of improvements to improve the attractiveness of the UK to both serial entrepreneurs and scale-up businesses.

Ben Handley, a tax partner at BDO said:

“There is little point at looking at the current tax reliefs supporting entrepreneurs in isolation from the whole of the UK tax environment for growing businesses.

“The Government has rightly identified that it needs to address the ‘incubator’ issue. While the UK may be a good location to start a business, scaling up is more of a challenge and this entrenches a ‘build it to sell it’ mentality. Meanwhile, the tax burden placed on entrepreneurs realising value combined with the reductions in IHT relief is increasingly leading to business owners deciding to leave the UK.

“Our latest survey of ultra-high net worth individuals suggests two thirds have considered leaving the country in the last 12 months. Introducing a broad-based capital gains reinvestment relief could help keep more entrepreneurs engaged in the UK economy.

“Overly complex rules and underinvestment in HMRC also adds more burden on businesses and entrepreneurs. For example, recent changes to the R&D regime have cut the rate of relief and added to administrative challenges. While these rules have reduced error and fraud, they have also contributed to the pervasive view among entrepreneurs that the UK is not an easy place in which to run a business.

“The April 2026 changes to IHT relief for businesses passed on to the next generation have also been perceived as a significant disincentive by entrepreneurs to retain, grow and pass on their businesses.

“While there has been a welcome increase to the IHT business relief allowances, this won’t be sufficient to change attitudes among entrepreneurs. We would urge the Government to consider easing the IHT payment position for the inheritor to improve survival rates for inherited businesses.

“But the Government needs to look beyond the current reliefs. We would support the introduction of a specific scale-up investment relief to provide support for larger scale-ups. As investing in scaling up businesses would attract less risk than most start-ups, the tax reliefs would not need to be as generous but investment limits for investors should be higher to enable simpler fundraising by scale-ups.

“Without urgent action, the UK’s tax ‘image problem’ will only get worse and the task of retaining successful entrepreneurs will only become more difficult.”

ENDS

Note to editors

BDO UK operates in 17 offices across the UK, employing 8,000 people. It has UK revenues of £1bn.

It provides Audit, Tax, Deals, and Consulting, Risk & Outsourcing services predominantly to the entrepreneurial, ambitious and growing mid-sized businesses that are driving growth in the UK economy. BDO calls this segment of the market the UK’s economic engine.

BDO LLP is the UK member firm of the BDO international network.

BDO’s global network

The BDO global network provides business advisory services in 169 countries and territories, with 95,000 people working out of 870 offices worldwide. It has revenues of US$11bn.

Contacts

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07812 463601

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