According to a report published in The Daily Telegraph, Chancellor Philip Hammond is considering abolishing the dividend allowance in the upcoming Autumn Budget. The treasury previously cut the allowance from £5,000 to £2,000 in the Spring Statement 2017 and apparently now has business owners, directors and shareholders in his sights to help fund a Government pledge to increase spending on the NHS.

 

How much more tax will I pay?

The first £2,000 taken in dividends in 2018/19 is tax-free, with anything above this threshold being taxed according to the individual’s rate of income tax.

Business owners, directors and shareholders use the dividend allowance to extract profits from their business, but recent changes have reduced this strategy’s tax-efficiency.

The speculation of Hammond’s announcement has prompted a backlash from the Federation of Small Businesses (FSB), which estimates that removing the dividend allowance would raise £1.3 billion by 2022.

Mike Cherry, chairman of the FSB, commented:

“Removal of the dividend allowance would be most keenly felt by small business owners on lower incomes. By whittling away the incentives to become a shareholder in small UK firms, you’re pushing investors towards taking their money and expertise elsewhere. That’s the opposite of what we’re trying to achieve.”

He continued:

“We need to back small businesses and their shareholders – not clobber them with a secret tax grab.”

The Office for Tax Simplification suggested that the dividend allowance should become a dividend exemption to improve financial literacy among savers.

When will this happen?

Although no set date has been announced, it’s unlikely to happen this tax year.

If you would like further information about dividend allowance and how this affects your business, please don’t hesitate to get in touch with our tax, payroll and accounts manager, Peter Bowyer. Alternatively, if you’re looking for accountants in Camberley to help with any other aspect of your finances, give us a call today.

To read news and blogs from Peter Bowyer, click here >>

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