Entrepreneurs hit by dividend U-turn

. . . but markets cheer as Hunt rips up Truss mini-Budget

JEREMY Hunt left business leaders reeling as he scrapped almost all the pro- enterprise policies introduced by his predecessor Kwasi Kwarteng to boost the economy.

As well as pressing ahead with a rise in corporation tax from 19pc to 25pc, the Chancellor said plans to cut dividend taxes and repeal offpayroll working rules would no longer go ahead.

Hunt said restoring ‘ trust and confidence in our national finances’ would require ‘decisions of eye-watering difficulty’.

His £32bn package of tax hikes was welcomed by investors with the pound rising and government borrowing costs falling.

But Goldman Sachs warned that the rise in corporation tax would result in a ‘more significant recession’ in the UK than previously expected. The investment bank said it expects the economy to shrink by 1pc next year, down from its previous forecast of a 0.4pc decline.

And the scale of Hunt’s intervention stunned bosses, who said the U-turn on dividend tax would hit entrepreneurs.

Martin McTague, national chairman of the Federation of Small Businesses (FSB), described it as ‘a blow to many small business owners trying to keep their heads above water’.

He added: ‘Dividend taxation doesn’t just hit investors – it hits hard-working entrepreneurs with bills to pay. In time, as public finances allow, we would like to see the Government revisit this.’

The dividend tax was raised by 1.25 percentage points in April this year along side the hike in national insurance to raise money for health and social care spending. Kwarteng reversed both tax increases in last month’s mini-Budget.

And while Hunt said the rise in national insurance would be scrapped, he said the higher rate of dividend tax would stay.

Laura Suter, head of personal finance at AJ Bell, said the decision creates ‘a more uneven playing field between those who earn money via dividends versus those who earn via a salary’.

Meanwhile, Kwarteng’s plans to repeal changes to IR35 payroll rules, which force many previously self- employed workers to be treated as employees by companies wanting to use their services, have also been junked, angering many contractors and client companies.

‘Today’s announcement will be a huge blow to thousands of selfemployed contractors and the businesses they work with,’ said Andy Chamberlain, director of policy at The Association of Independent Professionals and the Self-Employed (IPSE).

Michael Cleavely, managing director and co-founder of IR35 compliance specialist CoComply, said the decision not to repeal the changes was ‘incredibly frustrating’ and could provide fewer opportunities for contractors in the future.

‘It’s definitely not great news for the self-employed,’ he said.

Cleavely also accused ministers of ‘jumping on and off the bus’ in regard to the IR35 changes, which were rolled out by the Government over five years before being reversed by Kwarteng and then re-imposed by Hunt.

Some welcomed the U-turn. Paul Johnson, director of the Institute of Fiscal Studies (IFS), said Kwarteng’s repeal of the IR35 changes was akin to a ‘tax evader’s charter’ that would have cost the Treasury £2bn a year.