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Since Autumn 2015, when plans to increase tax on dividend income were first announced by government, Chorus has been campaigning on the issue. We identified that the transition from the old system of dividend taxes to the planned new arrangements will hit lower earning company directors particularly hard.
We’ve met with Ministers, MPs, and Lords from all parties to highlight our concerns. There has been a great deal of sympathy and understanding of the issues, but the Treasury hasn’t felt able to fund any changes in the proposals. It’s already banked on the additional income the hike in dividend taxes will bring in. Sadly the impact analysis commonly used in the policy-making process is blind to the differences between micro-businesses and larger firms. So like the cyclist in a truck’s blind spot, lower earning company directors risk seeing a real squeeze in this tax year – a classic case of “Sorry mate, I didn’t see you”.
As we’ve noted before, there is a particular perversity to the hardship this transition will cause lower earning directors. If the government holds true to its promises on increasing the personal tax allowance and reducing corporation tax, by 2020 the tax burden for lower earning directors will almost be the same as it was last year.
So while we haven’t yet been able to stop these changes, we are making good political progress. I’m absolutely thrilled to announce that, working with Chorus, the SNP’s finance lead in Westminster, Roger Mullin MP, has laid down an amendment to the Finance Bill in relation to the planned dividend tax changes. It reads:
The Chancellor of the Exchequer shall commission a review of how the changes to the tax on dividend income implemented by this Act affect directors of micro-business companies, to include—
(a) the impacts across the distribution of directors’ net income;
(b) whether company failure rates have been affected; and
(c) whether the law could be amended to minimise the impact on directors with low income.
The Chancellor shall report to Parliament about his findings within six months of the passing of this Act.
In other words, if agreed, it will require the government to look in real detail at the consequences on micro-businesses of the changes they’re pushing and what measures might be used to minimise the harm of those plans.
We’re looking forward to seeing this debate in Parliament soon, and hope to hear other parties supporting our cause. You can help by using WriteToThem.com to encourage your MP to support this amendment. Onwards!
Notes on the model use for graphic:
Assumes a single limited company director generating £43,000 company turnover each year. All profits after £8,060 salary and corporation tax are withdrawn as dividends
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