Small business owners across Otley who rely on dividends to pay themselves need to brace themselves for a major tax change, which could have a major impact on their take home pay according to a local specialist.
Andrew Thornton who runs TaxAssist Accountants in Otley said that amongst a raft of changes announced in the recent summer Budget, was a change to dividend taxation which would affect many local small businesses.
He said: “The Budget announcement was disguised as a new tax-free allowance of £5,000 for investors in companies. But many small businesses operate as limited companies and they depend on the company to provide their main source of income. The director-shareholders normally draw a small salary and, provided the business is profitable, the rest of their income consists of dividends.
“Those dividends are paid net of a notional 10 per cent tax credit and are not subject to National Insurance. This can make trading as a limited company significantly more tax efficient than trading as a sole trader or partnership.
“But from next April, dividend income over £5,000 a year will be liable for tax at the basic rate of 7.5 per cent, 32.5 per cent for the higher rate and 38.1 per cent for the additional rate. For many small businesses this will be a significant additional cost and many sole traders will think twice about operating as a limited company given the loss of tax incentives to do so.
“We’re encouraging local business owners to plan now for this major change, so they can build it into their forecasts and work out the best business model for them.”
TaxAssist Accountants Otley is a local business, operating across Otley, Guiseley and North Leeds, providing tax and accountancy advice and services purely to small businesses.