Chancellor Philip Hammond has been urged not to ‘clobber’ limited company contractors and other businesses with another dividend tax grab this autumn.

The Federation of Small Businesses (FSB) said it was concerned that the Treasury might once again cut the tax-free dividend allowance for limited company directors, to collect an extra £1.3bn in tax receipts. 

The Chancellor has already reduced the allowance from £5,000 to £2,000, a policy which took effect this April.

Now there is concern that Philip Hammond will announce a fresh raid on the dividend tax-free allowance in this year’s Autumn Statement.

The FSB calculated that removing the allowance entirely would raise an extra £1.3bn for the Treasury by 2022. This is on top of the £2.6bn it forecast would be raised from the original 60% cut.

“We need to back small businesses and their shareholders – not clobber them with a secret tax grab,” said Mike Cherry, Chairman of the FSB.

No date has so far been set for the Autumn Statement, but it is expected sometime in November.

Unlike his predecessor George Osborne, Philip Hammond only makes major tax and spending announcements once each year, in the autumn.

Miles Grady, Director of Umbrella.co.uk, said: “The Chancellor sees business owners and limited company contractors as a soft target, and it’s not just on dividends. Other policies like the IR35 changes in the public sector have hurt small businesses that are driving the economy forwards.

“If Mr Hammond targets limited company directors again, these individuals should seriously consider switching to an umbrella arrangement. Umbrella contracting is significantly easier, and the financial benefits make it worth looking into.”

To learn more about contracting with Umbrella.co.uk, speak to a member of the team today. Call: 0800 121 6513.