SMEs could be hit by UK dividends tax changes

Small firms in the UK paid out 63 percent of their profits as dividends in 2014-15, according to the accountancy firm, Moore Stephens.

Now the company claims that proposed changes to the tax treatment of dividends will impact the way that SMEs will be able to fund expansion.

Increased dividends

UK SMEs paid a total of £17.5bn in dividends last year, which was up from £10.9bn in 2013-14 and represented an increase of 61 percent.

Tax partner at Moore Stephens, Mike Cooper, said: "SME owners took out a much higher percentage of profits last year partly due to fears about what a future government's tax policies might be. While some were relieved by the result of the election, the dividend tax changes announced in the Summer Budget meant that the decision to take money out early was arguably the right one."

Changes

The Summer 2015 Budget provided for the replacement of the Dividend Tax Credit with a new Dividend Allowance.

Under the new rules, SME owners will need to take a greater percentage of their business' profits as dividends in order to maintain their post-tax income levels, according to Cooper.

"Some business owners may well be considering paying themselves a special dividend in advance of April 2016, and some have already done so," he said, adding that "constant adverse changes to the tax system" make investing for future growth "less attractive" for those SMEs affected by the new rules.