Many owners of small businesses are unhappy with the changes to Dividend Tax arrangements that come into force from 1st April 2016.
The government’s overhaul of the arrangements for the taxation of dividends means the notional 10% tax credit on dividends will be abolished.
From April all taxpayers, including business owners, will have a tax-free dividend allowance of £5,000 a year regardless of their other income. Dividends above this level will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).
Any dividends received by pensions and ISAs will be unaffected by the changes.
Beyond the £5,000 tax-free dividend allowance, the personal tax liability for taxpayers has effectively increased by 7.5%. No tax will be deducted at source; taxpayers must use self-assessment to pay any tax due.
Businesses and their representative organisations have argued this change flies in the face of risk and reward of running a business that contributes to the economy. Life as a business owner often means very long hours, low pay, stress, no holiday or sick pay, a life of uncertainty and worry.
The government have stated that business is going to be at the heart of their legislative programme for the next five years. Small businesses make up 99.3% of all private sector businesses and they provide just under 50% of all private sector jobs. There is a real danger that these new tax arrangements, along with auto enrolment and minimum wages increases, will have a significant effect on those people brave enough to start up a business that could make a meaningful contribution to the economy and jobs market.
A petition can be found on the parliament website that calls on government to reconsider these changes. The deadline for signing the petition is 24 February 2016, it needs to reach a minimum of 100,000 signatures to force a parliamentary debate on the subject.
