A rise in UK capital gains tax would be a ‘hammer blow” to startup staff, according to one of the top UK tech leaders.
Entrepreneurs and investors have voiced concerns over a possible hike in capital gains tax in the UK October budget to a top rate of 45 per cent, saying it could drive investment and startups overseas.
The Labour Party is looking 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 tech platform Thought Machine, said: “There is real dismay in the startup community, people cannot believe this.”
Startups often offer shares to staff instead of high salaries as an incentive to join.
The tax hike could see startup staff hit with 45 per cent capital gains tax when they sell shares, compared to the current rate of 20 which can be as low as 10 per cent with further tax relief.
Taylor said:
"My main concern is with staff because under the EMI [Enterprise Management Incentive) scheme, staff stock options are valued as capital gains.
“That was put in by the last Labour government in about 2001. That is a really, really important thing to give them a fair reward. It would be a real hammer blow on them.
“And the really hard thing is it's retrospective. They have been working for years under the basis that they pay 20 per cent for it to ramp up to 45 per cent is pretty bad."
Speaking more broadly about a possible rise in capital gains tax, Taylor said:
“It’s bad on the investor community. We have investors from the UK, we have got investors from abroad. You get decent tax breaks, why would anybody do it if the rate was going to go way up?”
Thought Machine is one of the stars of the London fintech scene.
The unicorn, last valued at £2.2 billion 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 were popular in Europe, saying the UK was a key market, and had also sold into the Nordics, Italy and Eastern Europe.
He said: “I think by banks signed, 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 had been no job cuts since and no plans for job cuts this year.
The founder also touched upon the use of GenAI and how if at all it was being used at Thought Machine.
He said that GenAI would not lead to a reduction in headcount at Thought Machine, given that unlike Klarna Thought Machine did not have a large customer support team.
Asked how Thought Machine staff were using 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 aren’t a programmer, getting AI to write a website is a huge boost. It is very, very productive. But when you are an expert programmer, it’s rare that it does it better.
“It’s not good at bleeding edge stuff. And what we’re doing here is bleeding edge platform technology."
IMAGE: PIXABAY
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