Government respond to online petition
Over 25,000 people signed the online petition requesting that the new dividend tax regime, effective from 6th April 2016, be reconsidered.
The petition, titled, ‘Reconsider the new Dividend Tax for small businesses’ stated:
“ The Government want to stop business owners being paid via dividends to reduce tax bills. This flies in the face of risk & reward for running a business & contributing to the economy. Life as a business owner means very long hours, low pay, stress, no holiday or sick pay & a life of uncertainty & worry.
The Government have stated that business is going to be at the heart of their programme for the next 5 years. Small businesses make up 99.3% of all private sector businesses and we provide just under 50% of all private sector jobs. There is a real danger that this new tax, along with auto enrolment and minimum wages increases, will have a significant effect on those people brave enough to start up a business that could make a meaningful contribution to the economy and jobs market.”
The Government has responded as follows:
“The Government is fully committed to supporting business and entrepreneurship. As set out at the Summer Budget 2015, the Government believes that one of the best ways to support growth and enterprise in the UK is through lower and more competitive Corporation Tax rates.
Owners of small companies will also benefit from a range of other measures announced at the Summer Budget, including an increase in the National Insurance Employment Allowance to £3,000 from April 2016 and a permanent increase to the Annual Investment Allowance to £200,000 from January 2016. They will also pay less tax as a result of the increases to the tax-free Personal Allowance to £11,000 and to the Higher Rate Threshold to £43,000 in April 2016. We also have a commitment to go much further, taking the Personal Allowance to £12,500 and the Higher Rate Threshold to £50,000 by the end of this Parliament.
However, it is not possible to continue to reduce the Corporation Tax rate without looking at the overall balance of the tax system, including taxation of dividends. Lowering the Corporation Tax rate without action elsewhere increases incentives for individuals to set up a company and pay themselves through dividends to reduce their tax bill (also known as tax motivated incorporation). Therefore the Government is reforming dividend taxation. These reforms, which will also simplify the dividend tax system, will significantly reduce the incentives for people to set up a company and pay themselves through dividends rather than wages simply to reduce their tax bill. Taxpayers and the Exchequer will now be £500 million better off as result of reduced incentives for tax motivated incorporation. Those who choose to work through a company continue to pay lower rates of tax than the employed or self-employed. But the reforms move the overall tax rates for the self-employed and those incorporated closer together, making the system fairer overall. “
Yet again, the Government has displayed its ignorance of the contracting industry. Many freelancers do not choose to set up their own companies because of the associated tax benefits.
Whilst they are attractive they are not the main driver behind incorporation for contractors. Most end clients will only offer contracts to freelancers provided they work through their own PSCs so incorporation becomes Hobson’s choice.
Anyhow, why shouldn’t business owners, small or large, be rewarded for the risks that they take in growing those enterprises?
As from April of next year one man PSCs will not be entitled to claim the National Insurance Employment Allowance so that is a red herring as far as contractors are concerned.
Nor will the increase to the Annual Investment Allowance be of any significant benefit to contractors unless their companies materially invest in assets that qualify for capital allowances.
The Government’s response is unsatisfactory but not unexpected. Another 75,000 signatures to the petition will force a debate in Parliament, so keep spreading the word.
It also ignores the fact that we have already paid Corporation Tax on the business earnings, so net we are not that much better off even though the second tax bite is less
It also ignores VAT. Not all clients can claim it all back. It is an extra tax on a contractor’s labour compared with an employee.
I read these lies last week. There is no “balance” involved, it is a massive cash grab. Nobody asked them to lower the VAT or increase personal exemption rates. Be assured the 7.5% will increase with each successive budget driving business out of the UK and inciting tax avoidance just like the Labour policies would have done.
Arrogantly ignoring the protests of 25,000 contracts (and growing) just puts some of us 1 step closer to exercising the 182 day rule and choosing to pay our taxes to more business friendly countries.
Funny how the amount this tax will raise varies depending on the story HMRC is trying to tell. Here, it’s a half-billion pound boost to the Exchequer. But if you point this out to anyone involved in the IR35 reforms consultation, their estimates reckon only going to raise about half that at most! (Which strangely enough means they believe the ‘deterrent’ effect of IR35 is still justified…) Both departments can’t be right…
Thank you Contractor Weekly. I have emailed all my clients asking them to sign the petition and to pass on the details to all the contractors they know.
Keep up the great work 🙂
they keep using the word deficit in a lot of changes they put on the British people, so why hit people running there own small companies ( i am a 1 man LTD company ), we did not create the debt we are in the rich created it ( then bankers), so why is it that that we are still continuing to be punished for there mistake , why are the banks not being forced to pay this debt and there share holders, not the whole country and small businesses, and also why are we still giving hundreds of millions of pounds to foriegn countrys when it could be used to reduce the deficit that they keep making a big issue of?
Indeed
The government should not keep on taxing employees or contractors and giving free money to people sitting at home and enjoying free money. The government should increase the threshold amount and also introduce 30% bracket.
Simplify the dividend tax – my backside – how does nothing to 5000, 7.5 % to basic rate and then whatever after basic rate become simpler than nothing to basic rate and whatever after.
Liars and theives
Time to offshore my business when this goes ahead, we will be hit with this, plus removal of travel expenses and NIC Employment Allowance.
I don’t have a problem with paying tax, but I do have a problem with being fleeced to pay off a National debt not created by the majority, but by a few corrupt greedy people.
Feels just like the poll tax..
[quote]These reforms, which will also simplify the dividend tax system, will significantly reduce the incentives for people to set up a company and pay themselves through dividends rather than wages simply to reduce their tax bill.[/quote]
And, in a recent survey, the results of which are on this website, [b]55%[/b] of contractors said they would discontinue freelancing because of the dividend rise… thus proving HMRC’s point!
Yes and earn less money in the private sector, Clock watch like most employees, be less productive because where’s the motivation to push the project boundaries and enjoy a lot more time off, We will then spend less on aspirational things and add to a slowdown in growth in this economy because we all know growth only comes from people paying too much for property and cars etc. Then who will have enough spare cash to pay 8 times there income for a house?
Signed the petition – however I’m still waiting for the email (as are others I know) that contains the link for confirming your signing of the petition! Anyone else experienced this? Apparently until the link in the email is clicked – you haven’t signed!
I think you need to think about the comments below in the bigger picture. Osbourne wants the UK to be a tax haven for non-domiciles who aren’t burdened with the tax rises the rest of us are, they only care about corporation tax reductions. On top of that having a bunch of small business hanging around to compete with your best customers isn’t really advantageous for him either. If small businesses shut down, unemployment rises, wages go down, and there’s a huge skilled job market to poach from – again, it’s win win for the off shore guys coming here.
Normally such a position would worry a government because of the huge welfare state bill it would produce, but he’s on to that too.
To put it another way: you are supposed to making money for his extended old boys network, not taking it for yourself. Know your place in society.