Transformation of UK tax system harms entrepreneurial culture

If the government continues with changes to the tax system, they will strip away the rewards for entrepreneurial risk.

Previously, there were tax breaks for owner-managers (OMBs) who took a nominal salary and topped that salary up with dividends. This was always regarded as a reward for taking significant entrepreneurial risk. Recent changes have already diminished the size of this reward and further changes to the tax rate on share dividends, which it looks fairly likely we’ll see in the Autumn statement, could end the tax system’s appreciation of entrepreneurial risk altogether. It is disappointing that the UK tax system is being transformed to provide less reward to the small and medium sized business owners who create jobs and stimulate growth. 

When the National Insurance rate increased to 1.25%, dividend rates also went up by the same amount. Following on from the National Insurance reversal, it was expected that dividend rates may also see a corresponding reduction. However, it seems unlikely that this will happen. The Corporation Tax (CT) rise to 25% in April compounds this. It all means OMBs who pay themselves through dividends will see taxes go up on all fronts. Income tax and corporation tax rates increasing against the backdrop of economic uncertainty means it will be a difficult time for business owners. 

With rumours that the Chancellor is planning a further hike in the tax rate on share dividends, now really is the time for OMBs to review their tax structures and see if they can be more tax efficient.

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