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Small firms hit by end to dividends

Gordon Brown has closed the loophole that allowed ownermanagers of small businesses to avoid income tax by paying themselves dividends inst-ead of salary.

Many IFAs see this as a “punitive measure” from the Chancellor, with Master Adv-iser managing director Doug Brodie arguing that the move could see many firms return to sole trader status, with widespread job losses.

But IFAs believe the purpose of using a limited company will cease to be primarily about tax. Advisers think the change will remove the inc-entive for individuals to establish their own companies and see a shift towards self-emp-loyed status and partnerships.

The Jelf Group business development director Brian Lawless says the move is not good for small businesses and that it makes pension planning look like a more attractive opt-ion as there is no requirement to pay National Insurance.

Lawless believes that as the new rules affect small businesses with a turnover of up to £300,000, the changes will not have as deep an impact as was initially thought when the move was proposed by the Treasury in February.

Brodie says: “By virtue of removing the ability of drawing income via dividends, the Chancellor is selecting against small companies. This is a crass piece of interference from the Treasury that is probably unworkable. The cost of trying to police this will be huge.”

Lawless says: “This is by no means a friendly gesture tow-ards small businesses who will need to take a good look at how they pay themselves.”

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