The Budget could contain a hidden tax for small businesses, say Milsted Langdon

Milsted Langdon has said that despite cuts to Corporation Tax, smaller firms may find themselves paying out more in dividend tax and wages.

Despite rumours that the Chancellor would not cut Corporation Tax lower than its current rate of 20%, George Osborne surprised Parliament by announcing that the rates would fall again to 19% in 2017 and 18% by 2020. While many larger firms may welcome this news, for owner managed businesses there could be trouble on the horizon, as during his speech Mr Osborne also announced reforms to dividend taxes.

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 Budget held bad news for those with non-domicile tax status, as from 2017 permanent “non-dom” status will be abolished. This will mean that anyone resident in the UK for more than 15 of the past 20 years will be required to pay tax at UK rates on all worldwide income and gains. The Budget also held bad news for residential landlords who will see changes to tax reliefs they receive for their borrowing costs. Currently they can claim up to 45% tax relief on mortgage interest, but the Chancellor has announced that this will be cut to 20% for all individuals by April 2020, with the changes being phased in from April 2017.

Rob Chedzoy, Tax Partner at Milsted Langdon said: “Whilst on the face of it, the reduction in the Corporation Tax rates is helpful for businesses, there are some significant changes hidden in the detail which will not be so welcome.  Many owner managed businesses will end up paying more due to changes in dividends taxation and the increase in wage costs.

“I would urge anyone who has concerns about these measures to seek professional help immediately to ensure they get the right advice ahead of the proposed changes.”

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Posted in Press Releases.