The campaign which has been set up on the official Parliamentary petition website will trigger a debate in the House of Commons if it manages to reach 100,000 names.
The changes were made in the Summer Budget in July. The Treasury said that the dividend tax credit would be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers. It takes effect from April 2016.
The Chancellor said the move would “simplify the taxation of dividends”.
Financial Planners said smaller firms would have to review how they pay directors as a result. The move has faced strong criticism, with Blick Rothenberg, the London Chartered Accountants, estimating basic rate taxpayers may be worse off by £1,700 per annum under the new rules.
Organisers of the petition stated on the official web page: “The Government want to stop business owners being paid via dividends to reduce tax bills. This flies in the face of risk and reward for running a business and contributing to the economy. Life as a business owner means very long hours, low pay, stress, no holiday or sick pay and a life of uncertainty and worry.
“The Government have stated that business is going to be at the heart of their programme for the next 5 years. Small businesses make up 99.3% of all private sector businesses and we provide just under 50% of all private sector jobs. There is a real danger that this new tax, along with auto enrolment and minimum wages increases, will have a significant effect on those people brave enough to start up a business that could make a meaningful contribution to the economy and jobs market.”
The Treasury issued a response to the petition, which read: “Dividend tax reform allows further cuts in Corporation Tax and reduces the incentives for tax motivated incorporations. The Government is fully committed to supporting business and entrepreneurship. As set out at the Summer Budget 2015, the Government believes that one of the best ways to support growth and enterprise in the UK is through lower and more competitive Corporation Tax rates.”
“It is not possible to continue to reduce the Corporation Tax rate without looking at the overall balance of the tax system, including taxation of dividends. Lowering the Corporation Tax rate without action elsewhere increases incentives for individuals to set up a company and pay themselves through dividends to reduce their tax bill (also known as tax motivated incorporation). Therefore the Government is reforming dividend taxation."
The Government has set the dividend tax rates at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers but there will be no tax credit. There will be an increase of 7.5% where dividend income exceeds £5,000.
Previously, individuals in receipt of dividends benefited from a 10% tax credit which for basic rate tax payers meant they could enjoy their dividend tax free. Higher rate tax payers paid an effective 25% tax rate.
Officials at HMRC said in an update following the Budget that the £5,000 tax-free allowance would still be taken into account when assessing someone's overall income for tax purposes.
The report said: “The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don’t have any tax to pay on the first £5,000 of dividend income you receive.
“Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000.”