Self-employed people who have established limited companies for tax purposes look set to lose out thanks to changes announced in the Budget.
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A cash blow for the self-employed
In his announcement, Chancellor Philip Hammond said that the tax-free dividend allowance will fall from £5,000 to just £2,000 from April.
The original allowance was only introduced last year, with the cut marking a significant change in the government’s stance towards small business owners.
According to analysis from Blick Rothenburg, as reported in the Daily Mail, the cut in the allowance will cost basic rate taxpayers £225 a year, with the figure rising to £975 for higher rate taxpayers, and £1,143 for those paying the additional rate.
The Federation of Small Businesses said the move amounts to “a further disincentive for businesses to invest and grow.”
Director/Shareholders - reducing the tax-free dividend allowance from £5,000 to £2,000 with effect from April 2018— BBC Business (@BBCBusiness) March 8, 2017
Government set to make more money from the self-employed
Slashing the dividend allowance was one of the biggest revenue-raisers in the Chancellor’s announcement, with the government saying it will net the Treasury nearly £1 billion in 2021-22.
Mr Hammond insisted that the change was intended to hit only investors with “substantial share portfolios”, who he said currently benefit from an “extremely generous tax break.”
Rises in tax could make people think twice about going it alone
But IPSE, the trade body for self-employed workers, told the BBC: “The reduction in dividend tax allowance, whether you work as a sole trader or through a limited company [will mean] you will be facing higher bills.
“The Chancellor shouldn’t forget that growth in self-employment has driven our labour market in recent years and punitive rises in tax will make many people have second thoughts about striking out on their own.”
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