The Government is about to bring in changes to shareholder’s dividend income that will make it harder than ever for small business owners to make a success of their limited company start-ups and small ventures. And the big question is ‘Why?’
(If you’re already thinking this sounds like a pretty dry topic for one of our blogs, you’d be right – but it’s a topic that’s going to have a BIG impact for a lot of people. And sometimes, like a good martini, it’s good to be a little dry…)
So, pin back your lugholes and we’ll explain why we think these dividend changes are such a negative move.
A change that will affect most small business owners
We’re huge believers in the power of small business.
Napoleon knew that Britain was a nation of shopkeepers, and small businesses still make up 99.3% of private sector business in the UK and bring in a combined turnover of £1.8 trillion. That’s a GIGANTIC boost to the British economy and, in a very real sense, makes small enterprise the beating, economic heart of our country.
It’s hard, then, to see the logic in making life more difficult for small business owners. And we’re very much behind the campaign by The F Word’s Serena Humphrey, to campaign against the negative impact of the new dividend tax.
So what’s all the fuss about? Just how will the changes to dividend income affect directors and business owners?
What do the dividend tax changes mean?
If you’re an owner or shareholder in a small limited company, you’ll be paid your income as dividend payments, taken from the company’s profits. The way this income is taxed is going to change – and many shareholders are going to end up out of pocket because of these changes (boo, I hear you cry!).
George Osborne’s 2015 Summer Budget announced the removal of the current Dividend Tax Credit, which at present means you pay less tax on your income from dividend payments.
From April 2016, this will credit will disappear, and will be replaced with a £5k tax-free allowance.
If you earn over the magic £5k in dividend payments in the tax year, you’re going to start being taxed a lot more on that income. And many business owners of small businesses are likely to fall into this category.
The impact on small business owners
When you’re a new business owner, you’re at a point where generating income and cutting tax costs is at a premium. So this change is SERIOUSLY bad news! It’s going to limit the cash you can pay yourself, increase your tax spending and make it harder than ever to make your small business pay for itself.
It may even dissuade some of the UK’s younger, entrepreneurial people from starting a business at all. If you can’t make a living with your amazing business idea, how are you going to get through those sticky first few years of starting your own business?
We’re certainly not enjoying having to explain to ambitious, motivated business owners that they’re going to be losing money, come April 2016.
We can help you reduce the impact
Tax is one of those unavoidable elements of running your own business. But if you think you’re likely to be affected by the changes to dividend tax, we can help you overcome some of the nastier costs of the dividend tax.
They key is planning, and making sure you put your tax planning in place well before the April 2016 cut-off point.
Sit down with us and run us through your current situation. We can explain the impact of the new £5k allowance on your personal finances and talk through some options for keeping the effect as minimal as possible.
Give us a call or drop us an email to arrange a catch-up over a coffee. The clock is ticking, but there’s still time to make sure the dividend tax doesn’t hit you where it hurts most: in the wallet!
And if you agree with us that the dividend tax is a tax too far, please do add your weight to Serena Humphrey’s petition against these changes.
