The impact of tax and compliance costs on investment
Waiting for stable conditions to return is becoming an increasingly difficult business strategy.
Ongoing cost and compliance pressures are affecting decisions about investment, capital expenditure and expansion. The more revealing question is where businesses are choosing to invest, why, and what return they now expect from doing so.
What aspect of your business do taxes and compliance costs most impact?
Investment/capex projects
Expansion plans including acquisitions
Size of workforce
Succession planning
Product sales
Other
Sale of business/land
Location
Are you actively planning relocation or expansion of any part of your business overseas to reduce costs?
Yes
No
The findings suggest that tax and compliance costs are sharpening the commercial test applied to investment. With investment and capital expenditure the area most affected, businesses are placing greater emphasis on returns, opportunity cost and long-term value.
Continuing to operate and invest in the UK should not automatically be interpreted as unqualified confidence. Relocating a farm, processing operation or established supply chain is very different from moving a business less dependent on location. Practical and operational constraints matter too.
What does appear important is investment selectivity.
For farming and food businesses, investment can take many forms: new machinery, buildings and storage, robotics and automation, acquisitions, infrastructure, technology, or measures designed to protect the business from future disruption. The common denominator is an increasingly demanding question about the commercial return.
That creates implications beyond capital expenditure itself. More selective investment can shape M&A appetite, valuations, disposal decisions and funding requirements. It may also favour investments capable of achieving several objectives together, for example improving productivity while reducing exposure to labour or energy costs.
"For M&A, a more selective approach to investment does not necessarily mean less activity. It can change the type of activity we see. Businesses may look to acquisitions where they can accelerate growth, add capability or achieve efficiencies more quickly than through organic investment, while increased pressure on costs and capital may also cause others to reassess which parts of their business they want to retain. That can create opportunities on both sides of the transaction."
Junaid Haroon Corporate Partner, Mills & Reeve
An international market for UK assets
The UK does not operate in isolation. International capital remains an important part of the food and agribusiness market, and UK businesses sit within increasingly global supply and investment networks.
What should businesses be asking?
Which investments are genuinely essential to competitiveness?
Where can capital address more than one operational pressure?
How robust are acquisition and investment cases if costs remain elevated?
Are decisions being evaluated against the opportunity cost of deploying capital elsewhere?
The takeaway
Resilience does not necessarily mean spending defensively. It can mean being much clearer about where capital creates the greatest strategic value.
"The challenge for businesses is how to balance remaining cautious in uncertain times without becoming static. Businesses should look to review their structures, investment priorities and succession plans, identifying where costs or risks can be reduced, while preserving flexibility to act when opportunities arise."
Katharine Danks Agriculture and Estates Partner, Mills & Reeve
