Chancellor urged to use Budget to ease ‘disproportionate’ tax burden on small firms

October 13, 2017
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Bath’s small business owners will be hardest hit by new tax regulations on dividends, one of the region’s largest accountancy firm is warning.

Bishop Fleming, which delivers accounting, tax, corporate restructuring and advisory services to businesses and private wealth advice to individuals, says a key change to the taxation of dividends next April will disproportionately hurt family companies.

Since April last year, company owners wanting to pay themselves a dividend out of the taxable profits they generate have suffered a tax charge, ranging from 7.5% up to 38.1%, depending on their level of income. 

The measure, which Bishop Fleming argues is against the best interests of the UK economy, was introduced by then Chancellor George Osborne with no prior consultation.

The worst hit are people running small, family businesses. They have suffered proportionally the largest increase in tax, at a time when the economy should have been encouraging them to grow their companies, says Bishop Fleming, which has the largest of its seven offices across the region in Bristol.

From April next year the allowance that is set against dividend income before the balance is taxed, will drop from its current £5,000 – only introduced in 2016 – to just £2,000, meaning shareholders will be even worse off by £225, £975 or even £1,143 a year depending on the rate of tax they pay.

For a couple who share the running of their company, this extra tax will double to £450, £1,950 or £2,286 per year.

Bishop Fleming head of tax Andrew Browne said the dividend tax created a “double whammy” for the UK.

“It penalises the very people we should be encouraging to grow successful businesses, and removes money from the economy that would otherwise help to support consumer growth,” he said.

“Slashing the dividend allowance unfairly widens the tax net without changing the rate of tax, which is not a transparent way of increasing people’s tax liabilities.”

He urged Chancellor Philip Hammond, pictured above, to use his Autumn Budget on November 22 to re-think cutting the dividend allowance and “send out a positive message to SMEs that their efforts are truly appreciated in boosting the UK’s enterprise culture”.

As a plan of action before next April, Mr Brown advised: “Provided the company has sufficient distributable profits, business owners should consider accelerating a dividend payment to before April 6, 2018, to benefit from the current £5,000 dividend allowance before it falls.”

 

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