Business owners react to controversial increase in dividends tax for new social care levy

The government's controversial tax hike for a new health and social care levy includes a surprise increase in company share dividends tax.

Despite anger about the plans from Tory backbenchers, Boris Johnson told Parliament that the 1.25% increase in National Insurance and dividends tax is needed to help fund health and social care.

A hike in employer and employee National Insurance was expected but the rise in the tax company owners pay on dividends was not predicted. Many limited company owners use dividends to pay themselves.

The prime minister said he accepted that the move, to be introduced in April 2022, breaks the Conservative Party's election manifesto promise to not increase taxes but "a global pandemic was in no-one’s manifesto".

He claimed that the measure, which the government says will raise £36bn over three years, "is the right, the reasonable and fair approach, enabling our amazing NHS to come back strongly from the crisis, tackling the COVID backlogs, funding our nurses, making sure people get the care and treatment they need, in the right place at the right time, and ending a chronic and unfair anxiety for millions of people and their families up and down this country".

Many business owners and the groups that represent them reacted angrily to the news with founders citing the fact that limited company owners were not covered by the government's coronavirus business support schemes.

Asked by journalists about their criticism, chancellor Rishi Sunak said 40% of businesses will face no increase, another 40% will pay an increase of £450 and the remainder will be paid by the biggest businesses.

But many entrepreneurs are still not happy.

'The rise in dividends tax will be a kick in the teeth'

Karen Wakins, Enterprise Nation adviser member and founder of Rowan Consulting, said: "We need to remember that the Tory manifesto was from pre-pandemic times so we were not expecting to be where we are now. However, the rise in dividends tax will be a further kick in the teeth for many small businesses, especially those that are part of the ‘Forgotten Ltd’ and who have more than paid the price throughout the pandemic.

"I wonder if more focus on tax avoidance by the bigger corporations would reap more of a reward than a further hit to the smaller businesses! I’m sure many other SMBs will be disappointed with the decision. It just feels like we’re coming up for air after the last year and we’ve have been hit by the next wave."

Fiona Scott, Enterprise Nation adviser member and founder of Fiona Scott Media Consultancy, said: "I completely understand the need to increase funds for the NHS and social care but I am appalled that dividend tax is going up too.

"Owner-managed limited companies like mine got little or zero support during the pandemic. We paid ourselves in dividends - so our pay was related to the performance of the business - no profit, no pay or a very low wage. We were forgotten and then it became clear we were deliberately excluded. Millions of us.

"I was lucky. I worked my socks off and, because of the nature of my business, I survived. I am now back on track.

"Now those people who were excluded are facing a double whammy. NI contributions increased for themselves and any employees - and more tax on their dividends if they are able to even make a profit after not being able to trade effectively for over a year."

Some business owners, however, have expressed support for the move.

'We need to step up as business owners to give back'

Kyle Raffo, founder of printing and merchandise company Embello and a qualified paramedic, said: "I absolutely agree with the decision to increase funds to the NHS and social care. It's essential as these sectors have supported families, individuals and businesses during the pandemic. These professionals have put themselves literally on the frontline, helping people with COVID-19, not shying away from contact and we now need to step up as business owners to give back.

"We have to do our part and we have to make some clear decisions around what our priorities are as a society. As an employer, I'm happy to put my hand in my pocket and play my part. I've seen COVID-19 in the raw and I know how hard health professionals have worked, some on very low pay."

Mandy Watson, managing director and co-founder of Ambitions Personnel, said: "I welcome the news. The COVID-19 pandemic couldn't have been in any manifesto and does need to be paid for somehow.

"Many will say that the tax is misdirected, but with the jobs market buoyant at the moment, this will no doubt be offset by the opportunities afforded as the economy has opened back up. These are unprecedented times, and the bill has to land somewhere."

If you'd like to share your views on the health and social care levy and how you think it will impact your business, email Dan.