What should a government do when the economy is struggling and they want to incentivise thousands of small companies to grow and create more jobs?
I have absolutely no idea, but making the owner pay more tax on their income is unlikely to be very welcome. And yet that is exactly what the Chancellor has announced. With effect from April 2016, shareholders (and therefore owner managers) will pay 7.5% on dividends up to a total income of £32,000. Where historically, a director has taken a small salary and approximately £30,000 in dividends, they will have paid no income tax. From 2016/17 onwards, the same scenario will lead to a personal tax bill of over £1500.
It will also ensure that ALL owner managers will fall within Self Assessment and have to complete a tax return. If they have never paid tax, they will also have to budget for a payment on account, effectively doubling their tax bill in the first year.
At the time of writing (April 2016) there doesn’t seem to be any way of mitigating this tax liability, but shareholders need to be prepared for this change.