SMEs paid out more in dividends over fears that taxes will increase
The percentage of profits British small- and medium-sized enterprises (SMEs) paid out as dividends last year rose to 63 per cent, up from 46 per cent the year before, according to accountancy firm Moore Stephens.
The accountancy firm said today this was due to business owners reacting to concerns about possible tax increases following the 7 May General Election.
Total dividend payments made by UK SMEs rose 61 per cent to £17.5bn last year, up from £10.9bn in 2014.
Before the general election many SME owners expected a future government to raise taxes on business. Moore Stephens says that with this in mind many owner managed businesses choose to extract money from their business rather than retain or reinvest.
Mike Cooper, tax partner at Moore Stephens, said: “SME owners took out a much higher percentage of profits last year partly due to fears about what a future government’s tax policies might be. While some were relieved by the result of the election, the dividend tax changes announced in the Summer Budget meant that the decision to take money out early was arguably the right one.
“The planned changes taking effect next year will mean that SME owners will have to take a greater percentage of their business’s profits as dividends to maintain the same post-tax income. This leaves less money to reinvest in the business.”