UK Business Registrations Decline In Wake Of New Dividend Tax

by Robert Lee, Tax-News.com, London

24 May 2004

A sharp fall in the number of new business registrations in the United Kingdom has been blamed on new tax provisions announced by Chancellor Gordon Brown in the 2004 budget, national media reports have suggested.

Figures released by the national business registrar, Companies House have shown that the number of new incorporations between late March and early May fell to 46,794, compared to 57,264 registrations in the corresponding period in 2003, representing an 18% decline.

The drop-off in new registrations has been blamed by many observers on the new 19% dividend tax introduced by the Chancellor in the 2004 budget to prevent small business owners from what he saw as manipulating the system to pay less tax.

Stephen Alambritis, of the Federation of Small Businesses, observed in a Times report: “The Chancellor’s decision to introduce this tax will dampen the growth path for many small businesses. It does not seem to have realised that incorporating is a springboard to growth.”

In the same report, John Whiting, a tax partner at PricewaterhouseCoopers, said the measure may ultimately be self-defeating, as it is likely to have a negative impact on tax revenues for the government.

“The tax take today could be reflected in a lower tax take down the line as some businesses are deterred from starting or expanding,” he noted.

The tax change has hit smaller firms particularly hard and means that a business paying $10,000 in dividends is now facing an additional tax bill of £1,900, whilst a firm paying £40,000 will pay an extra £475 in tax.

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