It was not widely discussed in the media at the time and has only had limited exposure in the press since, but the Chancellors decision to increase the tax rate on dividends during the first Conservative only budget for 18 years offers a significant tax increase to the majority of small business owners.
To quote George Osborne from his recent budget “This budget backs the small business owner”, however this new tax feels a long way from support for hardworking small business owners.
Under the new rules any shareholder taking more than £5,000 in dividends from their company each year will be paying more tax as a result of George Osborne’s budget.
This clearly is something all small business owners and their advisors should be discussing now as it comes into effect as of the 6th April 2016. It will lead to an increase in personal tax being paid by the majority of company Directors who take dividends as part of their remuneration package.
The illustration below demonstrates the tax increases under the new rules:
From my own discussions with business owners the extra tax due has come as a shock and really hasn’t been picked up by a significant proportion of the people it will affect. Make sure you are aware of how this new tax affects you and if you would like further guidance on your own specific circumstances please don’t hesitate to get in touch with me.