Earlier this month at the first Conservative Budget since 1996, Chancellor George Osborne announced a “big Budget for people with big ambitions to secure Britain’s future”. However, for smaller companies there are hidden taxes, such as changes to the dividend taxation system.
Under these reforms, the Dividend Tax Credit will be abolished in April 2016 and a new Dividend Tax Allowance of £5,000 a year will be introduced.
The new rates of tax on dividend income above the allowance will be 7.50% (up from 0.00%) for basic rate taxpayers, 32.50% (up from 25.00%) for higher rate taxpayers and 38.10% (up from 30.56%) for additional rate taxpayers. These changes to dividend taxation will impact on the overall tax rates for owner-managed businesses and the effective tax rates on extracting profits.
Dividends were exempted from an explicit tax during changes to the regime in 1997 and 1999 when Gordon Brown stopped pension funds from reclaiming a dividend tax credit and then abolished ‘advance corporation tax’.
SMEs will also be affected by plans for a new National Living Wage. The wage will start at £7.20 an hour from April 2016, rising to £9 an hour by 2020 for people aged 25 and older. In addition, changes to Sunday trading hours may affect small businesses competing with much larger retailers, who are likely to take advantage of extended opening hours. All of these reforms have the potential to incentivise private company owners to put their companies up for sale.
The Budget announcements mean there is a lot for small businesses to take in. At Milsted Langdon, our experts and business accountants have the specialist skills and knowledge to offer assistance to anyone concerned about the announcements made in the Budget.
If you would like more information about our range of personal and business tax services, please contact us.