Business owners need certainty to encourage them to retain UK businesses, experts say

Creating the right incentives and environment is integral to keeping UK business owners encouraged to retain their businesses, according to Andrew Burman, principal of tax transformation at global tax services firm, Ryan.

According to recent Evelyn Partners research, exit plans for UK businesses have been expedited over the past year, with almost a quarter (23%) of business owners having hastened their plans to either sell or wind down their businesses.

To try and combat this, Burman believes the answer lies in creating the right circumstances to encourage individuals to take risks. The public must be motivated “to take risks, start, build, and develop businesses, and of course to innovate with new ideas, business models and markets”, he says.

“It also lies in providing as much certainty as possible throughout that journey and ensuring there are options regarding the treatment, both from a tax perspective and otherwise, from any future exit or transactions so that business owners have some confidence.”

Businesses must plan ahead to combat uncertainty

Burman also argues that businesses prioritise certainty and require a well-defined plan in times of uncertainty.

“Our clients’ focus is to plot a course through that uncertainty, identifying various scenarios and having a plan in place to act when change becomes a reality and ensuring they know the levers they can pull when needed.”

The Evelyn Partners research also found that, with the prospect of a general election looming and Labour maintaining a substantial lead in the polls, UK business owners are hastening their exit plans over fears of a potential change in government and tax regime.

According to Burman, there is likely to be change across the tax system regardless of who wins the next election. This may be beneficial, but it depends on each business’ situation, he says.

“We certainly have not seen a rush to exit amongst our clients. Given all the economic uncertainty over the last few years, our clients are now treating these types of issues as part of normal business planning and are responding to it by improving their access to real-time data upon which they can make their decisions and, where possible, spot opportunities.

“Tax is only one of the factors that feeds into any such decision.”

UK businesses facing the same problems as other nations

According to a recent study by Bain & Company, US investors’ confidence in investing in the UK has decreased for three years in a row, and the drop was more significant than the previous year, falling to 6.5 out of 10.

However, Burman does not necessarily believe the UK has become an unattractive place to do business.

“Many of the shocks that have impacted the UK have also impacted other economies. As always, there are a range of incentives and reliefs across the tax ecosystem in the UK. Whether these make the UK more or less attractive is up to each specific business.

“Exchange rates have, for example, made investment in the UK a more attractive prospect for many overseas investors.”

Employee ownership trust’s increasing popularity as exit strategy

Employee ownership trusts (EOTs) was named as the top answer for business owners in Evelyn Partners’ research, being cites as the preferred exit route for 18% of survey respondents. Fiona Bell, partner at RSM UK, says the firm’s businessowner clients who have successfully used this as their exit strategy have begun to tell their friends.

“With these ‘word of mouth’ recommendations, it is no surprise that the number of businesses becoming employee-owned its increasing. It allows business owners to exit on their own terms and leave a legacy business for employees.”

Creating an employee ownership trust can be a quicker process than going to market, says Tom Shave, partner at Evelyn Partners.

“It also enables business owners to retain greater control of the valuation of the business, compared with external exits where the business’ value is worth what the market is prepared to pay.”

Burman echoes this view and says he is seeing more businesses considering giving their employees some “skin in the game”.