New plans to prevent husband and wife teams profiting from tax relief on dividends could signal the end for many family-owned firms, according to accountancy firm Hacker Young.
The introduction of a new Dividend Tax is expected in the chancellor’s Budget statement on March 17 and concern is growing among husband and wife teams about how it will affect them.
However, with only two weeks between the Budget statement and the beginning of the new tax year, Hacker Young warned small businesses and their accountants would have to pull out all the stops to ensure they complied with new regulations.
Roy Maugham, London partner at Hacker Young, said he anticipated the new tax would bring charges on company dividends in lines with salaries, which could mean they too could be subject to the equivalent of National Insurance contributions.
“The euphoria that met the chancellor’s introduction of a zero rate band on corporation tax for small businesses last year will no doubt be dampened by this new announcement.
“The effect of the chancellor’s most recent plans will no doubt be to increase the pressure on small businesses which rely on this form of tax relief for their survival,” he said.
The objective of the new tax on dividends is to ensure the same amount of tax is paid by owner managers of small incorporated business on the profits as on the wages extracted from their company.
Many family owned small business are currently being investigated for tax avoidance because profits may be generated by one member, who takes only a low level of remuneration or small profit share, taxable at 40 per cent, leaving income in the form of profit dividends to other family members paying lower rates of tax.
“The lack of more detailed information on the chancellor’s dividend tax is most disconcerting to husband and wife teams, as well as their accountants,” Maugham warned.
