A Financial Planner believes the Budget changes to dividend tax credits will mean business owners may have to reassess the most efficient method of remuneration.

Martin Bamford CFP^CM, managing director of Surrey firm Informed Choice, said a review may be in order after the announcement.

The Chancellor said yesterday that the dividend tax credit will be replaced with a new tax-free allowance of £5,000 of dividend income for all taxpayers.

He said it would “simplify the taxation of dividends”. The Government will 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.

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Since the announcement was made it has been suggested that the owners of small Financial Planning businesses might have to change the way they pay themselves.

Asked if he agreed, Mr Bamford said: “All business owners need to constantly review the most tax efficient method of remuneration. We’ve been used to a period of relative stability when it comes to dividends versus salary, but these Budget changes suggest a need to run the numbers again and review the best approach.

“Higher income tax on dividend income is at least partially offset by lower corporation tax rates in the future. I never begrudge paying tax as it is so important to help fund public services and also support the less fortunate in society.”

The move has attracted criticism from some, with accountancy firm Wilkins Kennedy branding it an attack on entrepreneurship.

But Mr Bamford said: “I don’t think this Budget is an attack on business owners, but part of a shift from state to private sector which is to be expected under a Conservative government.

“Owners of Financial Planning businesses are likely to be more concerned by the huge FSCS levy invoices arriving this week than a relatively small increase in their income tax bill next year. The solution, as it always seems to be, is to work harder and become more profitable.”

IFP board member Chris Williams CFP^CM, chief executive of Wealth Horizon, said: “The Chancellor’s introduction of a tax-free dividend under £5,000 will help a large majority of investors and will ensure that ordinary savers with smaller portfolios or who are planning to start building a nest egg for the first time, will see the opportunity for greater returns.

“However, not all investors will benefit. Those that have been in the enviable position of already establishing a large portfolio will see their returns take a larger hit. For the Government however, this may be a small price to pay for what will hopefully result in an overall increase of investment into the UK economy.”