In response to a petition asking the government to reconsider their proposed dividend tax hike, HM Treasury published a statement which, according to critics, was out of touch with the contracting industry and the needs of small businesses. 

The reply was published on the Parliament website where, once a petition reaches 10,000 signatures it must receive an official response from the government.

One contractor writing for IT Contracting dissected the government’s statement and explained paragraph by paragraph why it was “factually wrong” and removed from the realities of running a small business.

The writer, James Leckie, took issue with a number of key points raised in the statement including what he described as a “fundamental misunderstanding of the contracting industry.”

Some of his most important points were made about Corporation Tax regulations and a perceived bias against small businesses.

The first paragraph of the government response claimed:

“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.”

Leckie conceded that the need to support growth and enterprise with lower taxes was important. But he also suggested that the Treasury might be better served by ensuring larger companies pay the Corporation Taxes which they already owe instead of allowing them to channel profits through offshore tax structures.

Last week, it was reported that social network giant Facebook paid just £4,327 in Corporation Tax in 2014 after giving UK staff eye-watering bonuses. This means that last year Facebook paid less in tax than the average salaried worker in the UK.

The government’s statement also claimed that:

“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.”

Quite rightly, Leckie pointed out that so far, reductions in the rate of Corporation Tax have only applied to larger companies earning over £300,000 per year. While this higher tax band has dropped from 28% in 2009 to 20% this year, the rate paid by companies earning below the £300,000 threshold has stayed at 20% or 21% since 1998.

This perceived imbalance between treatment of small businesses and big businesses has been in the news a lot since the Conservative party conference.

Last week the Guardian reported that the Conservatives were giving big businesses like AstraZeneca the opportunity to “design their own tax loopholes”.

Jon Biddle, Group Chief Operations Officer at Umbrella.co.uk said: “This petition response highlights the gulf between the government and small businesses in the UK.

“Contractors and other independently employed people have already been stung by IR35 regulations and these proposed changes could put even more self-employed people in financial difficulty. We strongly urge the government to reconsider their proposed increase in the dividend tax or to find alternative ways of rebalancing the tax system.”

To sign the dividend tax petition click here. Remember, if the petition reaches 100,000 signatures then it must be considered for debate in parliament.