Britain’s tax system is crushing entrepreneurs and needs to be changed if the government wants more people to start, scale and sell a business, a tax expert has warned. Praveen Gupta, UK Head of Tax at international accountancy and business advisory group Azets, said the current system needed changing to encourage entrepreneurs to start businesses, hire staff and help the UK economy grow.

He said: “There is no incentive to set up, scale and sell a business in the UK. It costs more than ever to recruit staff and if you are able to sell your company, the Treasury takes a bigger slice of the proceeds than it has in decades.

“We understand the government needs to balance the books, but right now the tax system is preventing entrepreneurs from doing what they do best and the economy is suffering as a result. There’s a real risk the UK will lose the next generation of Bransons, Dysons and Bartletts unless something changes – either because they’ll go abroad or because they won’t take the leap and start their own businesses.”

Praveen proposes a four-part solution to take the shackles off would-be UK entrepreneurs:

• Raise the Employment Allowance rate to £50,000
• Slash the rate of Capital Gains Tax (CGT) to 10% for people selling a business
• Restore the Business Asset Disposal Relief (BADR) lifetime limit to £5m
• Introduce a two-year Employment Tax Roadmap

He said: “This approach would make it easier for businesses to hire, reward founders who have successfully exited a company – especially an SME – and provide stability for the UK business community about the government’s plans for Employment Tax policy. Any impact this would have on Treasury income would be offset by the fact that there would be more money going into the economy as a result of these changes, and more jobs created across the UK.”

Praveen explained that raising the employment allowance to £50,000 would give employers more confidence in managing their costs and improve their willingness to hire new staff.

He said: “A £50,000 employment allowance threshold would cut the National Insurance costs of the SMEs in the UK, as an employer wouldn’t have to pay anything unless their wage bill was more than £333,333 – currently NIC is due when a wage bill reaches circa £70,000. This small change would make a significant difference to SMEs – and to the UK’s employment figures – as firms would be more willing to hire people as they would know the NI costs could be managed and they’d have the funds to do it.”

When it came to changing CGT and BADR, Praveen argued that a new CGT threshold and a restored £5m BADR limit would enable successful entrepreneurs to benefit more from business sales – and potentially make them more willing to invest their earnings back into UK businesses.

He said: “Entrepreneurs typically don’t retire – many of them invest some of their hard-earned money from selling their businesses into start-ups or new companies looking to scale. Taking less of the money they make from selling a company would give them a larger amount to invest in new businesses, effectively creating an army of business angels who could help the entrepreneurs of the future grow.”

Praveen also called for a rolling two-year Employment Tax Roadmap, which he said would allow business owners time to plan ahead of any new changes being introduced.

He added: “The last two Budgets have had a significant impact on businesses and both have given them little time to get ready for any changes the new tax year brings. An Employment Tax Roadmap would enable business leaders to plan more effectively and budget more accurately, which creates more stability for businesses and the economy – in terms of growth, tax revenues and recruitment.”

Praveen concluded: “If the UK wants to avoid its entrepreneurs becoming an endangered species and really fuel economic growth, the government needs to take action now and evolve the tax system into something that encourages rather than stifles entrepreneurs and which gives them the stability they need to start and scale businesses.

“If it can achieve that, the economy and the country will be much better off.”

Figures from Companies House analysed by Azets show that there were nearly 13,700 fewer company incorporations in the 2025 calendar year compared to 2024. Data from the ONS shows there were an estimated 104,000 fewer payrolled employees between March 2025 and March 2026.

Based on data from the ONS, there were an estimated 29,000 fewer vacancies in the UK between January and March 2026 compared to October to December 2025 and there were an estimated 65,000 fewer vacancies during January to March 2026 compared to a year ago. Figures from the ONS show that around 75,000 more people aged 16 to 34 left Britain than arrived in 2025. This gap has grown every year since 2022.

HMRC has slashed contractor expenditure by £1m annually after ditching a decades-old outsourcing arrangement, as ministers face mounting pressure to identify £14bn worth of efficiency savings throughout Whitehall. Whitehall risks falling short of Labour’s £14bn efficiency savings objective unless departments cease repeatedly purchasing identical digital expertise from external suppliers, according to a British technology consultancy operating across government.

The caution emerges as City AM reported that HMRC has secured £1m yearly savings following an overhaul of a contractor framework that had underpinned vital Borders and Trade digital services for over three decades. Collaborating with British tech company Tecknuovo, the tax authority substituted more than 100 contractors with a service-based approach supporting eight digital platforms utilised in the movement of goods entering and leaving the UK.

The changeover was accomplished within three weeks, causing zero disruption to operational services and incurring no transition expense, as reported by City AM. The initiative delivered an 18 per cent decrease in running costs, yielding £1m in yearly savings. Onboarding times fell by 86 per cent, while all eight services attained green status for documentation, ensuring essential knowledge was retained within HMRC rather than remaining with individual contractors.

Meanwhile, Labour has established a target of £14bn in savings throughout this parliament, while pressure on the public finances has mounted after the Office for National Statistics (ONS) revealed the current budget deficit hit £34.5bn in the opening two months of the financial year – £7bn higher than the equivalent period last year and £6bn beyond the Office for Budget Responsibility (OBR)’s projection.

Simultaneously, the Public Accounts Committee has cautioned that government cannot precisely account for its consultancy expenditure, with estimates spanning from £1.36bn to £2.23bn annually.

“If ministers want lasting savings, transformation programmes need to leave departments genuinely stronger than they find them and not dependent on buying in contractors again for whatever the next project may be,” Katie Carruthers, managing director of Tecknuovo, told City AM.

“The issue isn’t external contractors or suppliers. There is of course a place for partnership. The issue is dependency.”

Carruthers stated government has spent years purchasing digital expertise instead of developing and maintaining capability within the Civil Service. This can render departments less capable of functioning as “an intelligent client” when acquiring technology, heightening the risk that services are not procured in the most efficient manner.

“When the knowledge leaves when the contractor ends, departments will find themselves paying to solve that same problem again,” she added.

Knowledge transfer Tecknuovo describes its methodology as “zero dependency”, embedding the transfer of skills and ownership into the contract itself rather than leaving it as a final-stage consideration.

“We think transformation should be measured by what’s left behind,” said Carruthers. “Knowledge transfer should be a requirement, not an end-of-contract activity.”

Previously, HMRC’s structure relied on more than 100 contractors supporting crucial Borders and Trade services, with many permitted to depart at short notice. Carruthers stated this generated “a significant and recognised risk” as vital knowledge resided with individuals rather than being institutionally held.

“What we built now with HMRC belongs to them,” she said. “Their internal teams are able to operate those services independently and use suppliers where it makes sense to bring in additional capacity.”

Government ministers have consistently positioned AI as a pathway to improved public services and reduced expenditure, yet Carruthers cautioned that implementing it without internal expertise risks establishing fresh dependencies.

“There is huge potential for AI to help government deliver better services at a lower cost,” she said. “But that’s only half the challenge. You need the skills, the capability and ultimately the foundational data to make that enablement a success.”

She noted the identical principle holds true regardless of whether departments are implementing AI, software-as-a-service solutions or other emerging technologies. Carruthers refrained from describing the £14bn savings objective as unachievable, but indicated it would necessitate departments transforming their approach to purchasing and maintaining digital capability.

“It’s a large number – many numbers add up to a large number. But project by project, programme by programme, lowering costs, increasing productivity and building longer-term capability starts to move towards that number.”

She added: “Knowledge transfer and bringing knowledge back into departments is part of what will enable government to succeed moving forward.”

New regulations currently under consultation could result in business owners facing penalties even when they settle their PAYE and VAT promptly – purely because they have used the incorrect payment method. An accountant has challenged the reasoning behind the proposed changes, branding it an “oddity”, while one business owner condemned the Government for treating companies like “errant school children”.

The Government is presently inviting opinions on proposals to mandate businesses to pay their PAYE and VAT return liabilities via Direct Debit, aiming to cut late payment, curb the accumulation of debt and streamline the payment procedure to minimise mistakes. It stated that responses from the business sector and other relevant parties would help shape the extent of future modifications and establish whether protections were necessary, alongside exemptions from Direct Debit payments for specific taxpayers.

The consultation is open until August 16, 2026. The Government acknowledged that certain businesses might encounter difficulties in paying by Direct Debit, including handling cash flow and adjusting to new procedures, and emphasised that feedback from the consultation was vital and would directly shape its strategy.

Should paying VAT and PAYE by Direct Debit become compulsory, any payment made through an alternative method — where no exemption applies — could attract a penalty, even if the full amount is settled promptly and on time. Harvey Dhillon, founder and chief executive of small business accountants Zmartly, said “moving most VAT and PAYE payments to Direct Debit is, for once, a sensible fix”.

He continued: “The late-payment penalties I see are rarely from firms that cannot pay, but from a wrong reference or the right money hitting the wrong period, and Direct Debit quietly ends that. That part is genuinely good.”

Nevertheless, he raised serious concerns over the prospect of fines for non-compliance: “When did paying your tax in full and on time become something HMRC could fine you for? That is the oddity in this consultation.

“A charge that can land even when the tax is paid in full and on time, purely because it went by bank transfer, is a fine for using the wrong envelope. The one caught is the careful business that always pays, not the debtor this is meant to chase. So before August 16, set up the Direct Debit, but tell the consultation that method is not the same as payment.”

Tony Redondo, founder of Newquay-based Cosmos Currency Exchange, was unimpressed and said the switch to Direct Debit to pay VAT and PAYE could cause cash flow issues. He added: “HMRC frames it as efficiency, and cutting the tax gap caused by manual errors. But businesses use Faster Payments and CHAPS deliberately for cash flow control. A mandatory Direct Debit hands HMRC a preferred creditor’s schedule, not yours.

“Worse, HMRC is consulting on penalising businesses that pay in full and on time, simply for using the ‘wrong’ channel. That flips compliance on its head.

“You’re punished not for failing to pay, but for failing to use their preferred technology. It treats SMEs like errant children.”

Rob Burgess, founder of London-based Head for Points, warned that the proposed reforms would prove “very handy for HMRC and very inconvenient for those of us who don’t want the trouble of ensuring the right sum is in the right bank account on a specific day”.

He went on to say: “Another tranche of people it will affect are those who choose to earn rewards points and other benefits on card payments, plus those using certain credit cards also enjoy a period of interest-free credit. If you are currently earning points from paying VAT or PAYE via a card, you should complete the consultation questionnaire with good reasons why Direct Debit is not suitable for you and similar businesses.”

Temporary VAT cuts on children’s meals, admissions and family attractions could trigger a summer of upheaval for businesses across the UK, it has emerged. Targeting families, the measure is being rolled out by the Government as part of a broader drive to bolster household spending throughout the summer holiday season.

A reduced VAT rate of 5% will apply to a range of supplies that are typically subject to the standard 20% rate from June 25, to September 1. The tax relief, collected by HMRC, is designed to lower the cost of activities for families during the school holidays, stimulate consumer spending across key sectors and deliver a short-term boost to the industries concerned.

The changes affect consumer-facing businesses supplying goods and services to families, spanning hospitality, leisure, entertainment and visitor attractions. Businesses in the firing line include restaurants, cafés and similar establishments supplying children’s meals, cinemas, theatres, concert venues and exhibition spaces and operators of live performances and shows.

Also affected will be theme parks, amusement parks and fairs, zoos, wildlife parks and aquariums, museums and cultural attractions, soft play centres and indoor/outdoor activity venues. The reduced rate applies exclusively to children’s meals marketed and priced for children, children’s admission tickets and admission tickets to qualifying family attractions.

However, Andrew Hopkins, a VAT partner at accountancy and business advisory firm Azets, believes that while the measure deserves a warm reception, it will also present considerable challenges.

He said: “While this presents a timely opportunity to drive consumer demand, it also introduces additional complexity for businesses. For many, implementing short-term tax changes can place added pressure on already stretched teams.

“Although temporary, the change brings significant practical and compliance considerations for businesses that may be disruptive if not managed carefully. We recognise that short-term policy changes like this can be difficult to implement, particularly for businesses with complex or high-volume transactions.

“The Government expects businesses to pass on the VAT savings to customers. While not mandatory, doing so may help attract more families and increase footfall.

“With VAT rates shifting from 20% to 5% and back again over a short period, the practical and compliance implications shouldn’t be underestimated. From pricing and systems to VAT treatment and reporting, careful planning will be essential. Taking action early will help businesses manage the transition effectively and make the most of the potential uplift in demand.”

HMRC rule change 2026 advice given

Mr Hopkins urged businesses to examine the matter promptly in order to ease the burden, sidestep last-minute complications, limit disruption and remain fully compliant. This encompasses pinpointing qualifying supplies and verifying eligibility, getting systems and processes ready ahead of June 25, reassessing pricing strategy and commercial impact, training finance and operational teams, and planning well in advance for the return to standard VAT rates in September.

Mr Hopkins added: “Businesses will need to clearly identify which supplies qualify for the reduced rate and which remain at the standard rate. Accurate classification will be key to avoiding errors and potential compliance risks.

“The change may require updates to pricing structures, ticketing models and accounting systems. Businesses will also need to consider how the reduced rate impacts their pricing strategy and margins.

“With VAT rates changing twice in a short timeframe (20% to 5% to 20%), careful planning is essential. This includes managing advance bookings, determining cut-off points and ensuring accurate VAT reporting across periods. Some businesses may need to reconsider how offerings are packaged (for example, adult vs child tickets or family bundles) and how these are positioned for VAT purposes.”