‘Business owners will rightly feel targeted’

which the Chancellor said will end the unfairness of these workers paying less than the employed The government has been attacked for delivering a “hammer blow” to Britain’s business owners after slashing the taxfree dividend allowance by 60 per cent.

City experts also reacted with puzzlement, as the dividend allowance for shareholders and company directors – reduced from £5,000 to £2,000 – was only introduced in the current tax year.

Analysts said the move sent a “confusing message” on the government’s attitude to savings in an era of historically low interest rates in the wake of the financial crash.

Philip Hammond told the Commons that the move was meant to “address the unfairness” around the dividend tax advantage, which he claimed was “an extremely generous tax break for investors with substantial share portfolios”.

The Chancellor said: “About half the people affected by this measure are director/shareholders of private companies.

“The rest are investors in shares with holdings worth, typically, over £50,000 outside ISAS.”

However, his words did not placate the critics.

Robert Pullen, a senior manager at London accountant Blick Rothenberg, said it was part of a package of measures in the spring Budget that is likely to hurt Britain’s broader business community.

Pullen said: “The changes to self-employed NIC [National Insurance contribution] rates and the dividend allowance do not reconcile with the statement to encourage and support entrepreneurs and innovators.

“When combined with the business rate changes, business owners will rightly feel targeted.”

He added: “Two years after a crippling 7.5 per cent increase to dividend tax rates, the more than halving of the £5,000 dividend zero per cent band to £2,000 is a hammer blow to small business owners.”

The accountancy firm has calculated that the cut will cost £225 for taxpayers on the basic rate, £975 for those on the higher rate, and £1,143 for those on the additional rate.

Andy Zanelli, senior technical consultant at Ascentric, said: “Some stars burn brightly then fade away. Many savers have looked to dividends for income in the current low inflation, low interest rate environment.

“This is another radical change to a recently introduced allowance. Savers need to think yet again about which tax wrapper and flavour of income will give them the best tax outcome.”

Tracyann Kneen, technical manager at adviser platform Nucleus, branded the slash in the divi allowance “surprising”, adding that “the new measure has been with us for barely a year”.

She said it “sends out a confused message to those trying to save for their futures. It doesn’t help with setting a long-term plan as well as hitting confidence in markets.”

The measure is expected to boost receipts from selfemployed workers by £900 million per year from 201920, according to the Office for Budget Responsibility.

However, it said the total will “primarily” come from ownerdirectors of companies who have “significant amounts of dividend income”.

The changes to the tax-free dividend allowance will come into effect in April 2018.