UK SMEs vs the new dividend tax reforms

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The recent reforms on dividend taxation in the UK has raised frustration among 25,000 congregated business owners who are currently rallying against the changes.
Serena Humphrey, who is currently the owner of a financial training company, is aiming to receive a minimum of 100,000 signatures to her petition against the new dividend taxation scheme. In such a case, Parliament will have an obligation to debate the issue.

Chancellor George Osborne’s Summer 2015 Budget provided for the replacement of the Dividend Tax Credit with a new Dividend Allowance, available to anyone who qualifies for dividend income. According to the Government, the first £5,000 of dividend income is tax-free and it will be applicable from April 2016.

The tax on any dividends obtained above the £5,000 limit will include:

7.5% on dividend income within the basic rate band (up to £43,000, with the initial £11,000 covered by the personal income tax allowance).
32.5% on dividend income within the higher rate band (£43,001-£150,000). and
38.1%on dividend income within the additional rate band (over £150,001).
“With other changes coming into effect, this dividend tax is an attack too far on small businesses. And we need to remember that those profits have already been taxed at 20%, so this 7.5% tax means we are paying 27.5% tax.”

– Serena Humphrey, MD of The F Word Ltd Business.

Mike Cooper, Tax Partner at Moore Stephens, explained that under the new dividend tax rules, small and medium business owners will have to take a greater percentage of their business’s profits as dividends, in order to maintain the same post-tax income. One outcome of this could be that their ability to reinvest in their company will be seriously affected.