Start-ups warn Reeves over budget tax bombshell

Sunday, 26 October 2025 16:54

By Mark Kleinman, City editor

A lobbying group representing UK start-ups will this week warn Rachel Reeves against a tax raid on limited liability partnerships (LLPs), arguing that it would hit the backers of Britain's most innovative companies.

Sky News has seen a letter to be sent to the chancellor on Monday, in which the Startup Coalition will argue that imposing employers' National Insurance Contributions (NICs) on venture capital funds could make UK fund launches "commercially unviable".

Venture capital firms, along with private equity firms, law firms and accountants were alarmed last week by speculation that Ms Reeves was planning to raise close to £2bn by taxing LLPs in this way.

Treasury officials are said to be in talks about the move ahead of next month's crucial budget statement.

"Combined with last year's carried interest reforms, this is the second budget where VC risks collateral damage from policies not designed for it - and the combination of these changes could raise VCs' overall tax burden by around 30%," Dom Hallas, executive director of the Startup Coalition, will say in the letter.

"Any additional tax on partnership profits directly reduces the working capital available to investment teams.

"For emerging managers, often operating at or below cost in their early funds, these changes could make UK fund launches commercially unviable.

"For more established funds, they would accelerate an existing trend: partners and decision-makers relocating to other jurisdictions.

"Fewer UK partners mean fewer meetings with British founders, fewer term sheets signed here, and less capital flowing into high-growth British companies."

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The group's intervention risks embarrassing the chancellor, given her pledge on Friday to "supercharge innovation" with a new unit aimed at so-called scale-up companies.

Mr Hallas's letter will call on the chancellor to protect venture capital fund structures from new taxes "while allowing the government to make changes to the wider LLP regime or similar areas".

He will also urge her to "differentiate [venture capital] from private equity in the tax system, aligning treatment with its public-interest role in innovation".

Sky News