Are you happy to pay more tax?

In this post I highlight some of the nasty tax increases on their way following the last Budget and I recommend some courses of action to take to combat these tax rises.

The Budget on 8th July, the first of the new Conservative Government, was not good news for small business owners and landlords.

There was a shock announcement of an extra tax on business owners who receive a large part of their remuneration from their companies as dividends.

The extra tax is due to take effect from 6th April 2016 and, apart from the first £5,000 of dividends which are tax-free, the tax is an additional 7.5% on dividends received.  This will typically equate to increases in personal tax bills ranging from a few hundred pounds to several thousand pounds, depending on the level of dividends received.

The injustice of the new dividends tax is that it does not just represent a breach of the Government’s pre-election promise not to increase income tax, but it is a tax on income that has already been taxed once in the form of 20% corporation tax. Business owners can therefore be forgiven for thinking that they are being taxed twice on the same income – because they are!

Landlords who have mortgages on their properties were also hit hard in the July Budget. From April 2017 there will be a reduction in the tax relief received on mortgage interest, phased in over 4 years, so that only basic rate 20% tax relief will be given on the mortgage interest. Many landlords who are higher-rate or additional-rate taxpayers therefore face big rises in their tax bills.

Worryingly, George Osborne compared the mortgage interest relief received by landlords with the mortgage interest relief that was withdrawn for homeowners 15 years ago. This suggests that there might be even worse news on the way for landlords in a future Budget with a possible withdrawal of all of the tax relief on their interest costs.

So what can you do to combat these tax rises?

Firstly, make sure you speak to your financial adviser and accountant – well you would expect me to say that, wouldn’t you! As the tax system is getting increasingly complex and punitive it is more important to seek professional advice than ever before.

Secondly, if you have never contacted your MP before, now is the time to look them up and write to them, especially if they are a Conservative MP, to tell them how unhappy you are with your higher tax bill.

Thirdly, consider adding your name to the petition that has been set up to protest against the new dividends tax on small businesses: https://petition.parliament.uk/petitions/106525 In the short time that it has been running it has already attracted over 20,000 signatures.

Neil Phillips is a director of Phillips Chartered Accountants, based in Shropshire, and is a Fellow of the Institute of Chartered Accountants in England & Wales and a member of its Tax Faculty. www.phillips.biz

neil@phillips.biz

No comments yet.

Leave a Reply

Time limit is exhausted. Please reload the CAPTCHA.