The UK government’s Autumn Budget 2024, which was published at the end of October and brings significant fiscal shifts.

For B2B and SaaS startups and scaleups—particularly those at Series A or beyond—the changes to National Insurance Contributions (NICs) and Capital Gains Tax (CGT) will be especially important. Understanding and preparing for these adjustments will enable startups and scaleups to safeguard profitability, optimise operational budgets, and enhance resilience against potential market shifts. In this article we outline the key changes and how B2B and Saas businesses can prepare.

Key Relevant Changes for B2B and Saas Businesses

1. Employers' National Insurance Contributions (NICs) Increase

Starting from April 2025, the rate of Employers' NICs will increase from 13.8% to 15%, and the threshold at which NICs become payable will decrease from £9,100 to £5,000. This shift means that employers will face higher NIC obligations sooner, increasing overall employment costs.

Impact on Cash Flow and Profit Margins

This change will directly impact payroll expenses, often already significant for growing B2B and SaaS companies. With the NIC increase, companies will need to reallocate budgets to account for the extra costs, potentially tightening margins, especially if they’re investing heavily in R&D or customer acquisition.

Potential Influence on Hiring Strategies

Rising NIC costs (along with recent proposed changes to employment rights) may prompt companies to reconsider hiring models. Some startups and scaleups may choose to hire more contractors or international staff who don’t incur NICs, or explore part-time or project-based workforce models. Outsourcing non-core functions could also help reduce the NIC burden.

Employee Benefits Restructuring

Given the added burden, companies might choose to optimise benefits without increasing cash-based salaries. Companies could lean on non-monetary perks, such as flexible work arrangements, professional development opportunities, or stock options, in an effort to enhance employee retention and satisfaction without inflating payroll expenses.

2. Capital Gains Tax (CGT) Rate Adjustments

Effective from 30 October 2024, CGT rates will increase from 10% and 20% (for basic and higher-rate taxpayers) to 18% and 24%. Additionally, CGT rates for Business Asset Disposal Relief (BADR) (formerly known as Entrepreneurs Relief) and Investors’ Relief will rise from 10% to 14% in April 2025, with a further increase to 18% in April 2026.

Impact on Early Exits and Equity Strategies

Business Asset Disposal Relief Implications

Founders who sell their shares typically apply BADR, historically allowing a reduced CGT rate of 10%. With BADR rates increasing to 14% in April 2025 and 18% in April 2026, founders planning an exit will face a higher CGT liability, reducing their net profit. For example, a founder selling shares with a £1 million gain would pay £140,000 in CGT starting April 2025 instead of £100,000 at the current rate.

Timing Considerations for Exits and Share Sales

Founders considering exits may wish to evaluate the potential benefits of selling shares before these rates take effect. Completing disposals before April 2025 allows founders to benefit from the current BADR rate of 10%, yielding significant tax savings. Whilst a 4% tax difference would be unlikely to determine a decision to buy or sell in most cases, it may speed up certain transactions which may have already been planned.

Strategic Tax Planning

Founders who can’t exit before the rate increases may find value in working with tax advisors to explore tax-efficient structuring options, such as partial or secondary sales or alternative tax relief options. Aligning exit plans with personal financial strategies can also help leverage any short-term tax advantages.

Reviewing Employee Equity Incentives

The increased CGT rates may reduce the after-tax value of stock options or equity awards. With BADR potentially rising from 10% to 18% over the next two years, founders may need to review these plans and communicate the impact of CGT changes transparently, possibly restructuring packages to maintain appeal.

Enhanced Focus on Investor Relations

With Investors’ Relief increasing alongside BADR—from 10% to 14% in April 2025 and then 18% in April 2026—investors face higher tax rates on gains from qualifying investments. This could reduce investor interest in UK startups. However, the continued availability of SEIS/EIS remains a strong incentive, helping to counteract the potential impact of higher CGT by providing attractive tax benefits for early-stage investments. Given the CGT adjustments, founders should communicate clearly with investors, emphasising tax-efficient structures and highlighting SEIS/EIS advantages where applicable.

3. Changes to Non-Domiciled Taxation Regime

Starting from April 2025, the UK will replace the remittance basis for non-UK domiciled individuals with a residence-based tax regime. Under this new structure, non-UK domiciled individuals who become UK residents will no longer be able to defer taxes on foreign income and capital gains by keeping them outside the UK. Instead, they will be subject to UK tax on their worldwide income. However, there will be a temporary relief period: for the first four years of UK residency, foreign income and capital gains will be partially relieved from UK taxation.

Impact on Attracting International Talent

The previous non-domiciled tax regime was key in attracting international talent by allowing foreign income to remain untaxed if not remitted to the UK. With the shift to a residence-based regime, the UK may be less attractive to highly skilled professionals who are non-domiciled, posing challenges in securing top international hires.

Additional Incentives for Attracting Overseas Employees

To offset this tax change, companies may enhance compensation and benefits packages for international recruits, offering relocation support, housing allowances, or flexible remote work options to help attract overseas talent.

Considerations for Leadership and International Expansion

For startups planning to relocate senior leaders or key team members to the UK, the new tax regime may increase their tax burden, potentially affecting relocation decisions. Founders may need to carefully structure compensation packages or explore remote leadership models to allow key talent to remain outside the UK if necessary.

Planning for International Expansion with Tax Efficiency in Mind

B2B and SaaS startups with global ambitions may need to approach international expansion with caution. Relocating functions or employees to the UK might incur additional tax costs, so founders may consider structuring global operations with tax efficiency, possibly by maintaining teams or headquarters in jurisdictions with favorable tax regimes.

Implications for Financial Structuring

With the residence-based tax regime in place, companies might explore tax-efficient compensation models, such as stock options or deferred compensation plans, depending on the individual's residency plans and the company’s long-term strategy.

B2B and SaaS companies generating significant non-UK revenue might benefit from retaining these streams abroad, provided this aligns with the company's operational strategy and complies with local tax regulations.

Preparing for a Dynamic Fiscal Environment

The Autumn Budget 2024 sets the stage for substantial changes that will no doubt impact operational and strategic decisions in the coming months and years. As we enter Q4, here are key actions to consider in light of the changes:

• Update Financial Models: Incorporate increased NIC and CGT costs to accurately reflect the new financial reality.

• Review Growth Plans: Explore workforce efficiency measures, automation, and alternative hiring strategies to manage rising employment costs.

• Consult with Tax Experts: Seek advice on CGT strategies and any reliefs or incentives to reduce tax burdens.

• Engage a Dynamic and Flexible Legal Team: A skilled legal team is invaluable in adapting to the evolving fiscal landscape. They can help structure deals, ensure compliance, and provide guidance on navigating new regulations, giving founders a strong foundation for growth with pragmatic risk management.

• Enhance Investor Communication: Maintain transparency with investors about the fiscal changes, highlighting strategies to maximise tax efficiency.

• Revamp Employee Benefits: Offer appealing non-monetary benefits to retain talent and remain competitive without excessively straining cash flow.

While the Autumn Budget 2024 introduces challenges, it also provides an opportunity for B2B and SaaS founders to refine operational strategies and increase resilience. A proactive approach to these changes will allow founders to protect growth ambitions and build a sustainable foundation moving forward.

Accelerate Law provides strategic and legal advice to startups and scale-ups throughout their lifecycles, including supporting with employment law and mergers and acquisitions. Contact us here to find out more and speak to one of our team and join our client group of high-growth startups and scaleups achieving their objectives quickly and securely with Accelerate Law.