UK small businesses dividend payments up 31% on previous year

UK small business net profits grew by just £2.4bn over the same period, far more slowly than dividend payments

UK small and medium-sized businesses paid out 94% of their profits as dividends last year compared to 63% the year before, according to accountancy firm Moore Stephens.

Total dividend payments from UK small businesses rose to £28.3bn in 2015 to 2015, up from £17.5bn in 2014. Net profits grew far more slowly over the same period, increasing from £27.8bn to £30.3bn.

This happened in advance of former chancellor George Osborne’s dividend ‘tax allowance’ coming into effect in April this year, which increased dividend tax from nothing to 7.5% for basic rate taxpayers, 25% to 32.5% for higher rate taxpayers and 30.56% to 38.1% for additional rate taxpayers.

This tax rise was thought to have damaged the ability of small businesses to reinvest their profits into growth and expansion.

Mike Cooper, partner at Moore Stephens, commented: “The changes could distort business owners’ behaviour and affect how they manage their finances.

“Many small business owners are basic-rate taxpayers, who will be particularly hard hit by the changes and may face difficulties when looking to grow their businesses.

“Politicians need to use tax policy to help entrepreneurs, rather than hinder them. Continuous changes may disrupt small businesses and force entrepreneurs to overhaul their business plans.”

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