Small business owners face a race against time to take advantage of a special dividend pay-out, as the government looks to raise the tax rate in April, according to new research.
Accountancy firm Moore Stephens has found that 28% of all SME owners plan to cash in via a dividend pay-out before 6 April, when the tax rate on dividends for higher rate taxpayers increases from 25% to 32.5%, reports SME Insider’s sister title Accountancy Age.
For many SMEs that earn a modest amount of income, their tax rate will surge from 30.56% to 38.10%, a dividend tax hike of some 7% for all middle and high rank earners.
Once the changes come into force in April, the top 20 firm predicts that 21% of SME owners will reduce their dividend pay-outs.
Mike Cooper, partner at Moore Stephens, believes that taking a pay-out now is a smart move from SME owners, as the changes to the tax rate could prove a burden for a number of microbusinesses.
“Providing the accumulated profits are there, it is a perfectly sensible move and undertaken in the right way is something that HMRC has absolutely no issue with. However, SME owners who do not pay a special dividend before 6 April will have missed out.”
“The changes to dividend tax will hit small business owners very hard – many are on relatively modest levels of income.”
“Nonetheless, SME owners should be thinking seriously now about how much of the value they have built up in their businesses that could sensibly be extracted before the 6 April deadline to stay ahead of the taxman.”
This article first appeared in Accountancy Age.