April 5 2016.

New rules on the tax treatment of dividends comes into effect tomorrow - April the 6th. The changes were announced by the Chancellor in his July 2015 Budget and mean that the first £5,000 of dividend income earned by shareholders each year will be tax-free. Any dividend income exceeding this amount will then be taxed at the following rates:

- 7.5% on dividend income within the basic rate band

- 32.5% on dividend income within the higher rate band

- 38.1% on dividend income within the additional rate band

Martin McTague, FSB Policy Chairman, said: “While we understand the rationale for addressing the long recognised imbalance in the tax system due to the tax treatment of dividends, it comes at a challenging time for our members. They are already dealing with the National Living Wage, auto-enrolment of pensions and the possible mandation of quarterly tax returns.”

FSB has consistently pushed for simplification of the tax system for small businesses. To support this work, we commissioned EY in 2015 to deliver a series of ambitious options for policymakers. Our members often cite tax administration as a major burden on their businesses. It’s concerning that a series of recent changes have been made in a piecemeal, not holistic way

Martin McTague continued: “The current tax system for small businesses remains overly complex, bureaucratic and hard for businesses to navigate. Many feel either forced to pay for expensive tax advice or run the risk of failing to comply.”