Small Business Dividend Pay-Outs Soared Last Year Ahead of Tax Changes

Total dividend payments made by UK enterprises hit £28.3bn in 2015/2016, up 63% from the previous financial year

Small Business Dividend Pay-Outs Soared Last Year Ahead of Tax Changes

Small and medium business owners in the UK chose to pay out 94% of their profits to their shareholders in 2015 rather than re-invest the money back into their business, a report from Moore Stephen has suggested.

The total amount of dividend payments made by UK enterprises hit £28.3bn in 2015 to 2016, up 63% from the previous year’s total of £17.5bn.

Moore Stephens suggests such a trend was heavily influenced by the recent changes to dividends tax, announced in July 2015 and introduced by George Osborne in April 2016, and the economic uncertainty caused by the EU referendum.

These changes included the dividend tax rising by 7.5% to 32.5% with the government also introducing an allowance where the first £5,000 of dividend receipts in a tax year will go untaxed.

Moore Stephens believe the changes will ‘significantly increase’ the tax burden for corporates, and make it more difficult for enterprise owners to manage their finances.

Mike Cooper, partner at Moore Stephens, said:

“Many small business owners are basic-rate taxpayers, who will be particularly hard hit by the changes and may face difficulties when looking to grow their businesses.

“Politicians need to use tax policy to help entrepreneurs, rather than hinder them. Continuous changes may disrupt small businesses and force entrepreneurs to overhaul their business plans.

“Entrepreneurs want to see future governments encouraging their businesses to grow by reducing tax on dividends. If the tax on dividends cannot return to its original level, entrepreneurs will at least call for it to remain unchanged to avoid any further damaging financial disruptions.”

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