View more on these topics

Advisers say dividend allowance cut is ‘slap in the face’ for firms

Tax-Taxation-Blocks-700.jpg

Advisers have hit out at the Government’s move to cut the dividend allowance by from £5,000 to £2,000 from April 2018.

The allowance, first introduced by George Osborne, means investors do not pay taxes on the first £5,000 of the dividend income, regardless of what non-dividend income they have.

In the Budget yesterday, Hammond said:  “The dividend allowance has increased the tax advantage of incorporation. It allows each director/shareholder to take £5,000 of dividends out of their company tax-free, over and above the personal allowance. It is also an extremely generous tax break for investors with substantial share portfolios.

“I have decided, therefore, to address the unfairness around director/shareholders’ tax advantage, and at the same time raise some much needed-revenue to fund the measures I shall announce today, by reducing the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018.”

Thameside Financial Planning director Tom Kean says the cut is “a real slap in the face” to small business owners.

He says: “I am fundamentally against the cut in the dividend allowance. It’s headline grabbing, bad for business owners who are already taking a lot of risks and now all the benefits have been slashed. On a human level, this is a pernicious move.”

Informed Choice managing director Martin Bamford agrees the move is disappointing.

He says: “We knew the tax-free dividend allowance was-short lived when first announced anyway. It was a step too far when Osborne introduced it. This is bad news for investors.

“The message since day one when it came out was not to be too complacent because tax allowances like these will change in the future.”

When the coalition government announced the tax overhaul on dividend payments in the 2015 Budget, experts warned it would risk discouraging investors from ploughing funds into large UK companies.

Page Russell director Tim Page says the Chancellor is looking into areas to raise “extra money” that will not affect him politically.

He says:” Both Hammond and the former government, but also Labour have made so many promises not to put out big taxes and also protect spending on NHS etc, but there are so few areas to change left for Hammond now. He’ll carry on looking at small obscure rules like this and keep tweaking them.”

Recommended

UK-Currency-Money-Pound-GBP-620x430.jpg
7

Govt to slash dividend allowance

Chancellor Philip Hammond has announced he will reduce the dividend allowance from £5,000 to £2,000. In his Budget speech today Hammond said the dividend allowance, introduced by his predecessor George Osborne, represented an “extremely generous tax break.” The Chancellor said the move would come into effect in April 2018. Writing for Money Marketing after the […]

3

Danby Bloch: Hammond’s warning on pension tax relief

The most concerning part of Chancellor Philip Hammond’s Autumn Statement was not in his speech, or even in the Green Book setting out the details of the main proposals. It was tucked away in a consultative document about cutting the amount of the pension money purchase annual allowance. The following passage from that document has […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. For those who have undertaken investment portfolio restructuring to take advantage of this, it’s indeed a slap in the face however I suspect it’s targeted at those who are employed by their own Companies.

    The frustrating thing, however, is that it’s less than 12 months since this was implemented and already it’s changing – meaning all that time and effort put in to react to the change could well have been for nothing!

    Why is there a constant need to tinker with allowances…

  2. Mr Hammond, with his Govt, tax payer funded, DB scheme, has no idea of the stress and risks taken by theself-employed ans small business owners.
    Cameron said “no NIC increases in this Parliament” and guess what, The Conservative Party LIED. How surprising MP’s lying. I suggest that Mr Hammond becomes a self-employed MP and sees how he gets on with his retirement planning. No sick pay, no pension, no private helth, no income protection, no life insurance and I am sure that the 15% self-employed do not usee 15% of the NHS services!!

  3. Dividends from (say) listed companies should be taxed on the old basis (ie basic rate tax payers pay no further tax on divs etc). The new method amounts to double taxation by creep for arms length investors who are not gaming the tax system. As for the new tax basis and the zero tax allowance for dividends from close companies, let’s face it, it was and still is a tax perk of owner/director private companies who can structure their own remuneration without a lot of e’ers NI being paid.

    Ditto the tax regime for the self-employed, who still avoid employers NI.

    I’m of the view that there ought to be some lighter tax load for those who take risks and have to put up with the government’s endless and ballooning bureaucratic crapheap, but equally, there is a lot of system gaming going on here with personal sevrice companies and the like. It would be more elegant of the government could seperate the true entrepreneurs from the tax-efficient “port of convenience” merchants.

    • Don’t lose sight of the fact that this dividend income has already been taxed at 19% corporation tax rate, so income over the new £2,000 limit will be taxed at 26.50% and for a higher rate tax payer obviously it goes effectively over 50%. All it needs is for tax relief to become a flat rate – ie it no longer pushes back the higher rate band – and our cups will be overflowing. At least I knew Gordon Brown wanted to shaft me, it’s hard to believe that a Conservative Chancellor is putting the boot into small businesses, of all sorts, in this way,

  4. At least Jeremy Corbyn is an honest guy and has the interest of the people at heart. Unlike this bunch of rich liars. Unfortunately he’s not very good at PMQs because he let’s Mrs Maybeazombie off the hook too much. There is more to politics than personality however.

  5. Of course the government could resurrect the unearned income surcharge. It is still on the statute book but set at 0%. Lets be fair too many people in the past have given up their jobs on a Friday then gone back to the same office on the Monday doing the same job in the same office but now as an employed person of their own limited companies. IR 35 was both ignored and not enforced with enthusiasm so Hammond is to be applauded for addressing the issue at long last.

  6. You assume those people are getting full employee benefits still.

    Also many have not used the revolving door.

    Still more money for HMG without nasty headlines.

  7. The issue for me as a small company director. I have to make a profit to pay a dividend, which I pay corporation tax on, I then pay employer NI 13.5% NI on staff wages, 5% employer pension contribution, it cost me to collect taxes off employees and process to HMRC, holiday pay, risk, capital tied up and no thank you from anyone. What I generate in tax revenue overall far out ways the saving on my NI because I pay myself a dividend. Everyone seems to want me to take the risks, employ people, pay their pensions, I have to pay the Government 13.5% NI for the privilege of providing work to someone, collect their payments at my expense and the icing on the cake, as a regulated adviser, not even the limited liability applies to me and my estate even though I am limited. Never mind, my working life is nearly over, retirement I think will be sooner rather than later.

  8. Cue the moaning from advisers earning 4x to 8x the national average wage. Boring.

Leave a comment