Cut to Dividend Tax Allowance halted, for now

The Government’s plan to slash the tax-free dividend allowance from £5,000 to £2,000 from April 2018 has been dropped ahead of the General Election.

The cut to the allowance was announced at the last Budget (8 March) by Chancellor Philip Hammond. However, in the rush to get the Finance Bill through Parliament before it dissolves, most of its clauses have been dropped, including the dividend tax allowance measure.

This news has been welcomed, but many predict the measure will resurface after the General Election, so any celebrations may be premature.

Unfortunately, the legislative changes to IR35 in the public sector remain unchanged.

The dividend tax was announced by the then Chancellor George Osbourne and came into effect in April 2016.

Before the dividend tax was introduced, company directors could draw down, upto approximately £42,000 from their companies without attracting a tax change beyond the corporation tax which had already been paid.

From April 2016, that figure was cut to £16,000 (made up from the £11,000 of personal allowance and the £5,000 of dividend allowance).

The Budget announcement in March would have seen that figure cut further, to £13,500 (£11,500 of personal allowance and £2,000 of dividend tax).

IPSE criticised the move to slash the allowance as it came so quickly after the introduction of the tax.

Announcing a change to the tax-free allowance of a tax that did not exist one year previous provides neither certainty nor stability for business – both of which are key principles of tax policy making as identified by the Treasury Select Committee.

Therefore, the decision to drop the plans are a relief, but if the Conservatives win the General Election (as predicted in polls) it is quite possible the measure will be re-introduced in the next Finance Bill.

Finance, Tax, Policy, HMRC, ir35

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