HMRC responds to dividend tax petition from contractors
The unpopular changes to dividend tax will be approached via a ‘carrot and stick’ approach according to the government’s response to the online petition which has been submitted to the department to protest the proposals. More than 25,000 people signed the document which called for HM Revenue and Customs to scrap their proposals to increase dividend tax in order to fund cuts to corporation tax.
Many critics believe that this flies in the face of the government’s stated desire to support small businesses and independent professionals, with many saying that a change such as this should not take place in isolation, rather as part of a broader overhaul of the tax system which should be conducted as soon as possible.
The ‘stick’ aspect is supposed to be the reduction of the incentive for individuals to set up limited companies and pay themselves using dividends rather than wages in order to reduce their tax bills. The reduction in corporation tax is designed to form the ‘carrot’ part of the incentive by discouraging individuals from engaging in ‘tax motivated incorporation’.
The department has also told signatories that the reforms are intended to simplify the dividends system, claiming that the plans will actually leave both taxpayers and the Exchequer better off, to the tune of £500 million, according to the Treasury. They have also said that those who operate through incorporated businesses will still enjoy lower rates of tax than those who are employed or self employed. The department are still claiming that they are committed to supporting small businesses, entrepreneurs and independent professionals, citing other elements of 2015’s Summer Budget which they believe are aimed at those who are keen to go it alone.
Our guide to contractor tax provides some useful information for those who are just starting up and for those who are already established, and our guide to the advantages and disadvantages of a limited company is ideal for anyone who wants to understand more about incorporation.
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