The Government has insisted it is committed to supporting business people and entrepreneurs, as a petition against dividend tax credit changes closes in on 25,000 signatures.
The Treasury has issued an official statement in response to the Parliamentary petition, which has been gaining momentum.

The campaign which has been set up on the official Parliamentary petition website will trigger a debate in the House of Commons if it manages to reach 100,000 names.

The changes were made in the Summer Budget in July. The Treasury said that the dividend tax credit would be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers. It takes effect from April 2016.

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The Chancellor said the move would “simplify the taxation of dividends”. Financial Planners said smaller firms would have to review how they pay directors as a result.

The change was branded an attack on entrepreneurship by accountancy firm Wilkins Kennedy.

The Treasury response to the petition read: “Dividend tax reform allows further cuts in Corporation Tax and reduces the incentives for tax motivated incorporations. The Government is fully committed to supporting business and entrepreneurship. As set out at the Summer Budget 2015, the Government believes that one of the best ways to support growth and enterprise in the UK is through lower and more competitive Corporation Tax rates.”

The statement read: “It is not possible to continue to reduce the Corporation Tax rate without looking at the overall balance of the tax system, including taxation of dividends. Lowering the Corporation Tax rate without action elsewhere increases incentives for individuals to set up a company and pay themselves through dividends to reduce their tax bill (also known as tax motivated incorporation). Therefore the Government is reforming dividend taxation.

“These reforms, which will also simplify the dividend tax system, will significantly reduce the incentives for people to set up a company and pay themselves through dividends rather than wages simply to reduce their tax bill.

Taxpayers and the Exchequer will now be £500 million better off as result of reduced incentives for tax motivated incorporation. Those who choose to work through a company continue to pay lower rates of tax than the employed or self-employed. But the reforms move the overall tax rates for the self-employed and those incorporated closer together, making the system fairer overall.”

Officials emphasised other measures from the Budget, which they claimed would help small companies, including an increase in the National Insurance Employment Allowance to £3,000 from April 2016 and a permanent increase to the Annual Investment Allowance to £200,000 from January 2016.

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Organisers of the petition stated on the official web page: “The Government want to stop business owners being paid via dividends to reduce tax bills. This flies in the face of risk and reward for running a business and contributing to the economy. Life as a business owner means very long hours, low pay, stress, no holiday or sick pay and a life of uncertainty and worry.

Matt Hall, head of tax at Wilkins Kennedy, said after the change was first announced that it “will hit entrepreneurship where it hurts because there will be no incentive to grow a business into a larger organisation as those who receive significant dividend income will pay more”.