It is feared that family businesses and husband and wife / civil partnership teams will be hardest hit by the Dividend Tax changes brought in by Chancellor George Osborne in his Summer Budget last month.

According to new research, such firms could be facing an extra tax bill of up to £3,306 each year, with the 7.5 per cent tax surcharge affecting as many as 1.4 million companies and their owners. In addition, the tax will affect those on incomes as low as £17,040 a year and even households with the highest earner on £38,040 will have to pay an additional £1,653 in tax.

Under the new rules, from April 6 next year the Dividend Tax rate will be 7.5 per cent for basic rate taxpayers, 32.5 per cent for higher rate taxpayers and 38.1 per cent for additional rate taxpayers. The first £5,000 of dividends will not be subject to the new tax and the previous dividend tax credit basis will disappear.

As an example, individual business owners who pay themselves only £30,000 of their firm’s profits will pay an additional £1,653 in tax every year, which could be trebled if the business is run by a family or partnership team.

Commenting on the new tax rules, a spokesman for a leading contractor organisation said that if National Insurance Contributions or income tax were to be increased by 7.5 per cent, there would be a national outcry and the UK would become one of the most highly taxed countries in the world and yet is seems acceptable to punish successful family firms who generate 60 per cent of the UK’s private sector employment.

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