Blow for business owners as dividends hit

Chancellor Jeremy Hunt was an entrepreneur himself, as he noted in his budget statement three days ago. But not all the measures he announced were welcomed by small businesses.

Support measures include £13.6bn in tax cuts over the next five years and a government-funded ‘transitional arrangement’, which Hunt said would benefit around 700,000 businesses and mitigate the impact of next year’s corporate tax increase .

Still, there were cuts in research and development (R&D) tax deductions and a reduction in dividend deductions, which will hurt entrepreneurs who pay themselves this way.

Small business owner Jennifer Brown, 44, welcomed news that the VAT registration threshold will be frozen at £85,000, as it means she won’t be required to pay more. She was also grateful for the increase in the Employment Allowance, which allows small businesses to reduce their national insurance contributions by up to £5,000.

But the biggest impact on her firm, Pampeano, which sells handmade Argentinian leather goods, is the budget’s impact on the value of the British pound. She says, “I import everything from Argentina, so my biggest challenge is the exchange rates between the US dollar and the British pound. Kwasi Kwarteng’s October mini-budget tanked the pound and cut my earnings. I’m so glad we now have people at the top of the government who are economically savvy and might be able to pull us out of the hole we’re in.”

Erin Moroney, owner of healthy snacks company Nibble, is relieved that the research and development tax credit has not been eliminated, but disappointed that it has been reduced. She says, “That fiscal stimulus really encouraged companies to do more research and development.

‘So it’s going to slow down the creation of more innovative products. For companies like ours, which are constantly developing new products, being able to claim money back has been very helpful. There’s a lot of trial and error in food science, so creating new products is a challenge.’

Jenny Clark, 30, is a yoga teacher, paddleboard instructor and founder of The Wild Times, which runs nature-focused retreats across the UK.

Since Jenny is already seeing business sales slowing, she had hoped for more help with the cost-of-living crisis. “I do wonder if I can keep doing what I’m doing,” she says. “Starting a business is difficult at the best of times and I don’t think the Chancellor has a handle on inflation.”

Self-paying entrepreneurs will be in worse shape, with the annual tax-free dividend payment cut from £2,000 to £1,000 in April – then to £500 in 2024.

Michelle Ovens, founder of campaign group Small Business Britain, says: ‘We welcome the announcements about business rates, particularly the increase in the rate reduction available to retail and hospitality. It will provide support to sectors on the frontline of consumer spending declines.”