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The Practitioner: Dividend tax hike hits incentive to run a business

JUST WHEN you thought it was safe to advise a client to keep paying himself his six figure salary as dividends George Osborne goes and moves (or at least reduces the size of) the goalposts!

The timing couldn’t have been worse. I had just presented an hour long slide show to a client’s board of directors, and on the drive home I listened to the budget.

The dividend tax hasn’t really had the press I feel it deserves to be honest. The impact however on most of our clients is massive. We are offering a free appraisal to clients who would like to know the impact it will have on their pockets.

I’m not an expert in taxation but I do get the feeling this is just the beginning of a gradual rise in dividend taxation.

Apart from feeling slightly aggrieved for clients and additional workload the changes may involve, I am feeling slightly sorry for business owners in general; myself included.

Tax reward removed

If this really is the beginning of an alignment in dividend and PAYE tax then where is the reward for the risk of being a business owner? If the business owner is taxed the same way as the employees what incentive is there for employees to owner?

We all know the extra risk, sweat, tears and sacrifice that comes with running your own business and for that there has to be some differential. Tax is one way currently that this can be achieved. Close that gap and the reward for the risk becomes less.

I, for one, will be keeping a close eye on developments in dividend tax, and if things change significantly over the next few years I could be tempted to hang up my practitioner boots and take up employment with a client for a lot less stress.

One such example of the stress of running your own business hit me full in the face this morning. The resignation of my most long standing employee. Whilst this is not necessarily the end of the world, (she was beginning to make frequent mistakes and upset the office environment), it is a pain in the backside to deal with. Being able to minimise my tax bill by paying myself dividends slightly eases the pain…

The Practitioner’s uncensored thoughts come from within their own practice – having left a regional firm in the heart of England

 

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