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UK family businesses to be taxed more from next year warns advisory firm

10/10/2017 News Team

Small business owners will be hardest hit by new moves to increase their tax burden, warns advisory firm, Bishop Fleming.

The firm, 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, against the best interests of the UK economy.

According to Bishop Fleming, since April 2016, company owners wanting to pay themselves a dividend out of the taxable profits they generate have suffered a tax charge, ranging from 7.5 percent up to 38.1 percent, depending on their level of income. The measure was introduced by then Chancellor George Osborne with no prior consultation.

From April 2018, 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 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's head of tax, Andrew Browne, said: "The dividend tax creates 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. 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 added: "I would urge the chancellor in the Autumn Budget 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 said that "provided the company has sufficient distributable profits, business owners should consider accelerating a dividend payment to before 6 April 2018 to benefit from the current £5,000 dividend allowance before it falls."

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