Tax free dividend allowance cuts to damage businesses

The Chancellor’s 2p increase on Class Four National Insurance contributions has gained much greater attention today than a measure that will hit limited company contractors. The 60% cut in tax free dividend allowance will hurt those businesses already dealing with increases to the taxation of dividends and uncertainty around IR35.

From April 2018, the tax free dividend allowance is being cut from £5,000 to £2,000, in the Chancellor’s words, “to reduce the tax differential between the self-employed and employed”. This allowance was a measure only introduced last year, and the constant tinkering will damage business confidence.

In his Budget speech today, the Chancellor heralded the UK’s economic strength and “record employment”, but measures such as this will hit the very people responsible for delivering our economic success.

We will be analysing the financial impact of this change in more detail, but as a general point IPSE is concerned that the government does not seem to be recognising the value that self-employment delivers to the UK economy in the form of greater flexibility. We will be making this point strongly in our engagement with Matthew Taylor’s ongoing review into Modern Employment Practices – including in our appearance before a public evidence session in two weeks.

Finance, Tax, Employment, HMRC, IPSE News

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