In 2015 it became clear that Government planned to change the dividend tax regime for the 2016/17 tax year. The change was an effective 7.5 percentage point increase on all the dividend tax rates. Our analysis, as cited in Parliamentary committees, showed that this change hit lower and middle earning business owners far harder than higher earners.
Due to limitations in how they do impact analysis, we don’t believe the government were aware of this unfair impact on micro-businesses when announcing these plans. We worked with Parliamentarians from all parties to raise awareness of these problems and to promote alternative proposals which would have delayed the impact on lower-earning business owners.
In the end 261 MPs across 7 parties voted for an SNP amendment which raised our concerns, but sadly a whipped government vote blocked the amendment. The Finance Act 2016 which implemented these dividend tax increases received Royal Assent in September 2016. We are continuing to campaign to improve government policy impact analysis so we can end a situation where 5.2 million micro-businesses are lost in a policy ‘blind spot’.
Disappointingly in the Spring Budget 2017 a cut to the dividend tax allowance was announced, dropping it from £5,000 to £2,000 for the 18/19 tax year. This is a real blow to company owner/directors which we are actively campaigning against.