Member Article

If you look at the recent changes to income tax, in particular the introduction of a 7.5% rise in the taxation of dividends (announced by George Osborne in the last budget), it is hard not to conclude that entrepreneurs are being targeted by the government. As attention turns to George’s next visit to the dispatch box, what should business founders and entrepreneurs expect?

By the government’s own admission and statistics, small and medium enterprises (SMEs) are a vital cog in the UK economy. Out of 4.9 million businesses in the UK, over 99% are classed as SMEs which employ over 14 million people. Whilst the changes in dividend taxation might have a minimal effect on existing SMEs (given there is no way around it), it may have a longer term impact on the rate at which new enterprises start up and the willingness of the business founders to take risks. After all, it is at the early stages of a company’s life that every penny counts.

Given the lack of public indignation to this rate hike, the chancellor might be tempted to further squeeze the business owner in the forthcoming budget. A major concern is that he would target Entrepreneurs Relief which would have a significant impact on owner managers looking to exit, who currently enjoy a relatively straightforward and benign capital gains tax environment.

Let’s hope that the Chancellor decides that the entrepreneur has carried his share of the burden and resists the urge to further target this critical segment of the economy.