Dividend changes to net Hammond £2.7billion

The chancellor’s cut to the tax-free dividend allowance has emerged as the single biggest revenue-raiser of Budget 2017.

Philip Hammond’s measure to reduce the allowance to £2,000 will raise an unparalleled £2.7billion over the next five years.

That makes it a bigger future earner for HMRC than the planned rise in Class 4 NIC, although it will hit slightly fewer taxpayers --1.4m, with average losses of £200 each a year.

PSCs able to control the timing of dividend payments should ensure any leftover £5,000 allowance for 2016/17 is fully utilised, advises Blick Rothenberg, referring to the cut in 2018.

Since 2016, basic rate taxpayers have been affected by the allowance if their dividend income exceeded £5,000; higher rate taxpayers £21,667 and additional rate taxpayers £25,231.

But accountancy giant Deloitte says that with the allowance reducing by £3,000, the “break-even” thresholds become £2,000, £8,667 and £10,092 respectively.

Tax experts at the MHH Partnership confirmed. “Director shareholders of small companies that have adopted the strategy of minimising salary and maximising dividends will likely pay more income tax on their dividend income because of this change.”

However, with the additional maximum yearly tax liability not able to exceed £1,143, the financial impact on owner-managers is going to be “relatively small,” says the British Chambers of Commerce.

Another supporter of tiny traders is more concerned about the message the move sends, particularly, it said, to company directors on only modest incomes who are eying expansion.

“In the wake of changes to dividend taxation last year, this is a further disincentive for businesses to invest and grow,” said the Federation of Small Business.

“[We are] concerned about the increased uncertainty this may cause across the business community. We would now like clarity over how this fits in to the publication of the government’s Business Tax Roadmap, which prioritised the importance of creating a stable and certain tax environment for small firms.”