The recent Finance Bill contains a number of changes that will adversely affect small businesses across the UK.
From 6th April 2016, the shareholder directors of small businesses will likely see a reduction in their take home pay as a result of changes in the 2016 Finance Bill. Some people may consider this to be in poor taste in a week where the press is full of revelations that assets (and presumably) income streams have been diverted off-shore for the benefit of the richest strata of society!
The major change is to the taxation of dividends. Before April 2016, small company shareholders could take dividends from their company and as long as the money taken formed part of their basic rate tax band, there was no additional tax to pay.
From April 2016, it is all change. Although Mr Osborne and his team have exempted the first £5,000 of dividends – these are tax free – any dividends in excess of this amount will be taxed at 7.5%, 32.5% or 38.1%, depending on whether the dividends form part of the shareholder’s basic rate, higher rate or additional rate tax band.
These are significant tax increases, even with the £5,000 allowance taken into account.
The Chancellor has also slipped in new anti-avoidance measures that will make it much more difficult to take accumulated profits out of a small company as capital taxed at lower rates of capital gains tax. For example, if a company was liquidated and there were spare funds to be returned to shareholders, these funds will now be considered income subject to possibly higher rates of tax.
There are strategies to minimise these changes related to alterations of shareholdings. Get in touch with us – we can advise on some possible solutions.