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Dividend Tax changes here to stay despite protests by contractors and business owners

Dividend Tax changes due to come into force from April 2015 that increase contractor tax bills by thousands of pounds each year and marginal rates by 6% look set to stay, despite protests and a petition by contractors and other small business owners.

The Government’s response to the petition “Reconsider the new Dividend Tax for small businesses” claims that cuts to corporation tax must be funded and tax motivated incorporation brought under control by removing tax breaks.

“Dividend tax reform allows further cuts in Corporation Tax and reduces the incentives for tax motivated incorporations,” said the Government’s response. “It is not possible to continue to reduce the Corporation Tax rate without looking at the overall balance of the tax system, including taxation of dividends.”

ContractorCalculator CEO Dave Chaplin believes that contractors and other small business owners have been cynically targeted by the Government and hit with higher taxes because they are a small group accounting for not many votes.

“The life expectancy of any Government that increased employee income taxes by thousands of pounds each year would be numbered in weeks, if not days. Yet is it OK to increase the tax bills of the UK’s small businesses, including husband and wife teams and family businesses that will be disproportionally hard hit, because they don’t command enough votes.”

Chaplin fears that the current Dividend Tax changes signal a concerning change of policy direction: “As the Conservative Government formed by the party that was formerly an advocate for business and family values appears to have abandoned its core values, we can safely assume that the Dividend Tax will increase year-on-year. The Government’s response to this petition clearly shows that it does not truly understand the damage the measure will cause to the UK’s small businesses, job creation and wealth creation.”

Serena Humphrey founder of Survive & Succeed the Campaign for Successful SMEs agrees, adding: “We fear that this the thin edge of the taxation of entrepreneurs and marks a worrying change to the Government’s approach to the wealth creating, job creating army of small business owners who account for 99% of all private sector business.

“Many experts believe that the next moves will be to further increase taxation on dividends, ultimately forcing us onto payroll where there are absolutely no benefits at all to the business owner.

“This means we’d be treated like normal employees, which we really aren’t. We’re the first ones to not get paid when cash is tight, first ones to forgo holidays, days off and time with the family, and the ones putting everything at risk.”

The petition has 25,682 signatures and will continue to run until 24 February 2016. Should the number of signatories reach 100,000 in that time, it could trigger a debate in Parliament.

Chaplin urges contractors to sign the petition and make their concerns known to their MP: “Legislation has yet to appear about how the Dividend Tax changes will work, so there may be a chance, however slim, that changes could be made.”

Contractors concerned about how much extra tax they will be pay from April 2016 can use ContractorCalculator’s Dividend Tax Calculator to work out how much cash they will need to set aside to cover future tax liabilities.

Published: Thursday, 1 October 2015

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