End of IR35?

The new dividend tax, introduced in yesterday’s Budget, appears to be very clever. The Treasury / HMRC have never liked the small company strategy of paying small salaries and substantial dividends to avoid the costs of National Insurance. This is the reason for the IR35 legislation. There has been talk previously of applying NI to dividends to overcome the avoidance, but that is fraught with difficulty. This simple dividend tax solves the problem. It makes no distinction between disguised employment companies and those where the work performed is genuine ‘self-employment’ It collects additional tax from anyone receiving a significant amount in dividends, and to a large extent eliminates the need for HMRC to consider whether IR35 is relevant or not. We now have to go back to the drawing board to calculate the optimum combination of salary and dividends. Inevitably it will involve an increase in tax/ni for many one-man limited companies.