The Chancellor announced major adjustments to the taxation of dividends in yesterday’s post-election Budget in a bid to curtail tax driven business incorporations. These changes could be seen as an attack on entrepreneurship, says top UK accountancy firm, Wilkins Kennedy LLP’s Hertford office.

 

Previously, individuals in receipt of dividends benefitted from a 10% tax credit which for basic rate tax payers meant they could enjoy their dividend tax free. Higher rate tax payers paid an effective 25% tax rate.

 

However, under the new system, anyone who receives dividend income will not pay income tax on the first £5,000. Basic rate taxpayers will pay 7.5% tax on any additional dividend income, higher rate taxpayers will pay 32.5% and additional rate taxpayers 38.1% but there will be no tax credit.

 

Tim Croft, Partner at Wilkins Kennedy Hertford, says: “These latest announcements will hit entrepreneurship where it hurts because there will be no incentive to grow a business into a larger organisation as those who receive significant dividend income will pay more. An entrepreneur with profits of £100,000 will see their annual tax bill increase by over £3,500.

 

“Small business already feeds the economy and are significant contributors to their communities as they create wealth and employment as they grow. Therefore to target them with further taxes could see entrepreneurship in the UK take a nosedive.”