£150m tax hike to hit London economy from April

Under the new tax regime business owners could face a personal tax increase in excess of £1660 if they have historically paid themselves dividends. Currently, business owners do not pay tax on dividends paid within the basic tax band.

The new rules will see an additional 7.5 per cent tax paid on dividends within this band after a new annual allowance of £5000.

The change will take out £150m from the London economy and will have significant impact on boroughs that have a high percentage of owner managed businesses. For example in Islington, which has 8000 SMEs, particularly in the creative sector, the hit to the local economy could be £2m a year.

As well as the £2 million tax hike for business owners in the borough, they also face the impact of other business owners reducing discretionary spending on items bought on the local high street such as drinks, magazines or a snack.

Guy Cowling, Managing Director of Specialist Fine and Graphic Art Shop, Cowling & Wilcox, spoke of the impact: “We are an independent small chain with shops in Shoreditch, Highbury, Camberwell and Canterbury. These changes not only increase the level of tax we pay but also our customers which will have a double negative impact on our business.”

Joseph Robinson, Managing Partner of Robinsons, one of the leading SME accounting firms in London, said: “There are two weeks left before London businesses are hit by the 7.5 per cent tax increase; they need to take action now by speaking to their financial advisor. These changes will have a double whammy on the SME community as income is cut due to the tax hike and also for those businesses that rely on local business spending in their shops.