Dividend tax one year on…

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It’s been almost a year since the controversial dividend tax changes came into effect.

April 6th, 2016 marked the abolishment of the 10% tax credit on dividends and the introduction of a £5,000 tax free dividend allowance.

Now shareholders and directors of small private firms have been hit again, with the tax free allowance more than halved from £5,000 to £2,000.

The changes, announced during the Chancellor’s 2017 Budget speech will come into effect from April 2018.  

Philip Hammond said the move had been brought in to provide ‘fairness’ and to reduce a tax perk that had been ‘enjoyed by those trading through limited companies and by private investors’.

The Chancellor said that HMRC estimated that people working through companies cost the exchequer £6bn a year.

“It’s not fair and it’s not affordable,” said the Chancellor.

The move is expected to raise £2.63bn by 2021/22.

“The announcement caused a considerable amount of anger amongst business owners when it was first announced,” said Peter Way-Rider, tax manager at Ellis & Co.

“This is yet again another cut back at the expense of the entrepreneur.

“Directors of small businesses will now need to look more closely at the way they reward themselves for their effort,” he added.

For advice on this and any other business tax issue, contact Peter Way-Rider on 01244 343504.