Thousands of small and medium-sized enterprises (SMEs) in the UK, currently more than 35,000, are joining the campaign against recent changes to the taxation of UK dividends, which come into effect next April.
Serena Humphrey, a Nottingham based small business owner and founder of Survive and Succeed, believes that the ability to take dividends as a share of profits that have already been taxed at 20 per cent, up to the higher earners’ threshold, was one of the fundamental components of risk and reward for the hard working entrepreneur. She and her 35,000 followers are urging other business owners to sign a petition arguing against the reforms that would force Parliament to debate the issue.
The dividend changes
In his ‘emergency’ Summer Budget, Chancellor George Osborne announced the replacement of the Dividend Tax Credit with a new Dividend Allowance. The allowance will be available to anyone who has dividend income. The changes will mean that only the first £5,000 of dividend income is tax-free.
Tax will then be charged at incremental rates on any dividends received above the £5,000 allowance. These rates are 7.5 per cent on dividend income within the basic rate band – which is up to £43,000 – with the first £11,000 covered by the personal income tax allowance; 32.5 per cent on dividend income within the higher rate band of £43,001 to £150,000; and 38.1 per cent on dividend income within the additional rate band, which is over £150,001.
Ms Humphrey’s argument is that the dividend tax is an “attack too far” on small businesses. She says that the Government needs to remember that the profits have already been taxed at 20 per cent, so this 7.5 per cent tax means that small business owners will be paying 27.5 per cent tax; well above the basic rate.
At Clearways Accountants we agree with these thoughts. Running a small business is hard work and the entrepreneurs and flexible workers that the Government boast about should be encouraged not hit hard.
If you would like to add your vote to the petition then click here.