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clive elliot

This is a tax increase and a particularly unfair one in that it penalises those who take risks.

Also it discriminates between different classes of dividend recipient on wholly specious grounds. At the moment Directors pay the same rates of tax on their dividends as any other shareholder in the same financial circumstances. You wouldn't be able to get any shareholder to be a company director at all if this proposal was enacted, a totally perverse incentive since it is beneficial to a company that directors have a stake in the company they run, the bigger a stake the better.

It might go down well in Scotland where the majority of people are employed by the public authorities (subsidised by England) and whose main motivation therefore is an attitude of jealousy and envy, but it should have no place in the vibrant active economy which we as Conservatives want to stimulate.

Incidentally the numbers which Mr. Morrison describes are quite wrong, the saving is nowhere near as big as he states at £32k, and in any case varies according to individual circumstances. No doubt an accountant on this blog can come up with better figures.

In fact this proposal is a really silly one, redolent of the 'Selective Employment Tax' of the 1960s, and appropriate to a left wing Labour administration, not a Conservative one. Please vote against it.


@clive elliot


We need a flat tax structure and we should put a cap on the maximum amount of tax anyone must pay. We need to be promoting enterprise and the best way to do that is to bribe entrepreneurs with additional tax breaks. Then the rest of us in the public services can live off the wealth they create.

The cost of this proposal is that it will drive our remaining entrepreneurs abroad like the Seveties all over again.


Any attempt to close a tax loophole is a bad idea in my book. The more loopholes the better! Furthermore thiis proposal interferes with freedom of contract - why should a Director not be able to pay himself dividends? If the shareholders don't like it then they can arrange to have him sacked. If the Director in question is the majority shareholder then it's his company and he can do as he damn well likes!

Mark Wadsworth

NO - this is nonsense I am afraid.

The way forward is a flat tax system.

If companies pay tax at 30%, and income tax (including NI) were reduced to 30% (with no further tax due on dividends, of course), then it would and should not make any difference whether a director/shareholder takes tax-deductible salary (that is taxable on him) OR non-tax deductible dividends (that are tax-free as far as he is concerned).

BTW, flat-rate across the board income tax (including National Insurance) at 30% is just about do-able if the government reins in its belt a bit and we get rid of tax relief for pension contributions and other stupid tax breaks.

Dan Hassett

Andrew, you are making a big mistake here.

Many people start up their own businesses because they have highly specialised skills. Examples of this include the IT sector. By establishing their own businesses they are able to contract their skills to companies as and when they are needed. That is financially beneficial to both the contractor, who can command higher hourly rates for his/her work and the contractee who can employ specialists to deal with work as and when the need arises. The combined effect of that is a benefit to the economy which also leads to increased tax revenues.

The tax system does not skew things to the extent that you suggest - in fact since the introduction of IR35 many contractors have been forced out of business due to the high tax payable.

These SMEs have to pay Corporation Tax and, if appropriate, UBR, which individuals do not pay. Moreover, they submit their own accounts and tax returns, saving Revenue & Excise some work. That usually requires someone to work part time on the admin side of the business as well as paying external accountants. If these businesses are to be treated as you suggest (as some already are, thanks to IR35), the result will be that staff will have to be paid out of a director's salary, meaning the payment of two lots of income tax, two lots of employee NICs, at least one lot of Employer NICs and potentially paying for the employee's student loan and pension out of income which has already been taxed.

Your proposal would cover some businesses where the Director would have several staff, such as pub landlords. If your proposal is approved, the government will take over 80% of some incomes in direct taxation!

Other people would also be affected - some builders and taxi drivers spring to mind, so it would affect a large chunk of the population. It would quickly spark an anti-Tory reaction from the cabbies. The impact upon the building industry could bring vital building works to a halt, with an immediate impact on the economy. The impact on the IT industry would also threaten our position at the cutting edge of technology, with long term ramifications for our competitiveness as a nation.

As to your question - is it right for someone to earn £32,000 without paying any tax. The premise is itself ill-informed. This person is simply paying different taxes.

All in all, a disasterous proposal. However, the party does need to take a good look at this industry. IR35 needs a major overhaul, as it simply doesn't work...but that's a whole article in itself.

Denis Cooper

There should also be a look at why "earned" income and "unearned" income like dividends are as the general rule aggregated for tax purposes, when it would be better to keep them separate and introduce separate personal tax allowances.

Similarly there should be a look at the share option schemes made available to the directors of large companies which often give them an incentive to manage the company to achieve relatively short term increases in the share price, even if that is damaging to the long term prospects of the company.


Surely this is a joke. For a moment I thought I had logged into the Labour Party website !

Do you honestly have any idea of what you are proposing ? I don't think you do. I'm not going to add to the excellent comments made above, there is no need to.

After 10 years of disaster badged as 'New Labour', I will be looking at an alternative of 'New Conservative', which is actually, 'New Labour' in disguise.

Your choice is words is worryingly similar to the Paymaster General herself. That is enough reason to denouce this pathetic attempt to paint all small business owners as 'tax dodgers'.

For the first time in my life, I am seriously considering not voting for you at any election, be it London Mayoral, Local Council or National Government.

You obviously have no clue of the taxes that small companies pay in the UK. I think it's time I seriously investigated relocating.



Whilst the intention might be considered reasonable, the implication of IR35 is completely unfair. It's perfectly okay for the Richard Branson's of this world to pay themselves a petty amount should they so wish, but not the aspiring entrepreneur. We aren't all in it for a tax dodge, many of us are trying to make a go of it on our own, nursing a fledgling business. Any sensible government would want to support that arrangement because today's small fish become the big fish tomorrow.

If we are going to tackle the crime of tax avoidance (not evasion) then how's about some fair rules of play being introduced? For everyone, no exceptions, the rule should be that the first £20K of income from any source has to be treated as salary. And how's about us budding entrepreneurs getting the benefits that regular employees get, like sickness and holiday pay? We have to make up that shortfall ourselves out the money we do earn. We aren't complaining about having to do so, it's the nature of the game we agreed to work within. We take the risks of not having an employment contract, when times get lean we can be out of work in an instant, what's the point of taking risk if there is no benefit in doing so?


I agree with all the negative comments I'm afraid. I am also not sure the proposer has even got his basic facts right because even small companies have to pay some Corporation Tax surely, and higher rate tax still applies to dividends over the deemed basic rate paid. If someone is taking all the risk of owning and running their own business, and not getting into higher rate tax, well frankly they deserve all the breaks they can get. There may be an NI saving but as a small company is often creating employment, and therefore generating NI on others' pay, I am not sure it is so dreadful that the owner makes a saving. If he is self-employed, he is anyway going to find it a lot more difficult to claim many benefits if things go wrong than an employee who loses his job.

IF we really thought this was a problem, extreme instances could be tackled at the other end, i.e. if an owner manager is paying himself so little salary as to be ridiculous, and yet the company is paying big dividends, there could be some requirement to demonstrate that the salary is not articifically low - but with never a requirement for a salary of over, say, £50,000. But this is very micro tax avoidance stuff hardly suitable for a slate of Opposition policies.

Having risked upsetting big business with emphasis on corporate social responsibility etc (which I support), it would also be folly of a high order for the Cameron leadership to upset small business in this way - so it's totally unsuitable as a "100 policies" component of a putative manifesto.

Picking up on Denis Cooper's post - I agree in priciple that separate investment and earned income tax allowances are a good idea although ironically THAT probably would need close company dividends to be excluded from the investment part of the equation. It also might be better to combine it with reform of dividend taxation because, as you can no longer claim back the tax credits, it would push people to invest in deposits rather than shares to use the allowance. A well thought through replacement for the present dividend tax regime would in fact be a very good subject for policy development generally as it's also tied up with the pensions problem.

I do not however agree very much with Denis's point about share options. Whilst yes, they mean there are times when management is keen for the share price to be healthy because they have vesting options coming up that they may be intending to sell, the minimum vesting period from grant is always at least 3 years (often 5 years on the more fashionable Long Term Incentive Plans). Once they vest the option holder can then run them for many more years up to 10 years after grant. In either case these are considerably longer periods than the average time most types of shareholders hold their shares - so management's interest may in fact be longer term than the shareholders. They also reward people who stay at one company more than people who hop around in short term fashion.(The profits are now usually subject to both income tax and NI for both employee and employer, so, at times when the stock market has been strong for a few years, like now, the tax rake-off that the Revenue makes from people exercising options is large. I would be interested to know if the Revenue publishes any figures but there would be quite a lot of lost revenue to make up, I suggest, if there were no options.)

Father Brian

Unbelievable, Blue Labour at its worst and typical of those who have hijacked the Conservative Party. Indeed this is worthy of "Dim Prawn" Primarolo herself. It used to be envious Labour types that advocated "soaking the rich" to pay for that ever larger Labour-voting public payroll. This is nowhere more evident than in the proposer's native Scotland.

Do the political classes think we owe them a living? The biggest tax dodge is being a Member of a Parliament or Assembly, living off the efforts of the small businesspeople this suggestion would clobber.

Why should the enterprising subsidise the indolent? Why should tax cuts go to the lower paid, they're already paying less!

The Conservative Party will never gain office on a platform of high taxation, led by Hooray Henries with no experience of the real world of work. Never forget that lower taxes bring financial independence, an important goal of every true conservative.


This suggestion is based on a fundamental misunderstanding--i.e. that a Director paying dividends in place of salary can reduce or eliminate any tax liability.

The concept of a dividend is that it is paid out of company profits which are taxable--the dividend paid to the Director is what remains after said Corporation tax liability.

Without getting into the fine detail (which keeps changing) a dividend of £800 paid to the director of a small company will be from a profit of (roughly) £1000 which has already incurred a Corporation tax liability of (again roughly) £200--From the tax personal point of view, it is perceived as a payment of £1000 but comes with a 'tax credit' of (again roughly) £200 which equates to the basic rate of tax.

The said payment (£1000) is added to all other earnings when computing the personal tax bill--the basic rate taxpayer will have no further liability but higher-rate taxpayers will incur an additional liability on the dividend.

Payment of dividends doesn't really make any difference to either personal tax or company liability--one way or the other, the company pays-over tax to the Inland Revenue.

National Insurance Contributions are another matter as these are certainly avoided by paying Dividends--and also by paying various benefits-in-kind rather than salary.

Historically, the small contract 'personal service' companies mentioned in other posts were quite happy paying dividends until a Conservative Chancellor removed the 'ceiling' on the employer's contribution
using the ridiculous argument that the employer rather than the employee would pay.

Of course, NICs are part of the total employment cost which will influence any salary negotiation.

At that point, the level of taxation was perceived as unreaonable so most one-person contractor companies switched to paying dividends, thereby avoiding NICs altogether

The biggest problem with our tax system is it's ever-growing complexity which requires a complete overhaul rather than this kind of 'sticking-plaster' solution.

PS Most Conservative MPs vigorously opposed the IR35 legislation.

Justin Hinchcliffe

I'm voting no to this - this policy is worthy of a Respect pledge.

John Moss

As a director of a small company, I can only say that Andrew has completely mis-understood the process by which dividends are paid. Not least, that they are paid to shareholders, who are not necessarily directors.

A company which makes a profit pays between 19% and 30% in Corporation Tax. Any dividend is then paid out of the tax paid residual profit. As it is a well established principle that the same profit not be taxed twice, the shareholder then pays an additional amount of tax based on their personal circumstances.

In my case, as I pay myself a salary which uses up all my basic rate tax, this results in my total tax paid coming out at about 45% on anything paid as a dividend. This is a lower overall tax rate when compared with the 54% I would have to pay if it was paid as salary, (40% tax, 1% employee NI and 12.8% employer NI), but why shouldn't I reward myself and my shareholders in the most tax efficient way?

I can hardly think Andrew is advocating 54% tax rates on all income or profit?

Personally, I would advocate scrapping ALL Corporate taxation of profit or capital gains. This would result in bigger payments of either salary or dividend and get rid of any suggestion that "business" is fiddling the system. It would be shareholders and employees who would pay all the tax.

Graeme Brown

Surely the real issue is why do we have National Insurance when most welfare is now means tested. NI is in fact nothing more than a Stealth Tax on the employed. NI should be abolished. If people want an additional surtax on employed workers they should say so.

Mark Wadsworth

Graeme Brown, excellent point!


John Moss says

Not least, that they are paid to shareholders, who are not necessarily directors.


Quite right - an important distinction which I forgot to mention.

For some reason, many of the proposed policies on this blog remind me of 'Right Said Fred', the old Bernard Cribbins song.

That was about lots if suggestions being thrown into the ring without any fundamental concept of how to go about the task.

Mark McArthur-Christie

Sorry, this is a joke isn't it?

Do you have any idea how difficult it is to set up and run your own business? Do you have a clue how tough it is to keep on top of the paperwork from government, comply with ill-thought out directives AND bring in the business?

I took the risk to start my own firm. Yes, I want to make a profit from it, but I also want to offer people jobs and a secure working environment. If I'm to be penalised (in effect) for trying to go it alone, why the hell should I bother? I'll go and get a nice cushy government job somewhere.

Perhaps, Mr Morrison, you should be asking yourself if you're in the right party? Stifling initiative and increasing taxes is usually a Labour trait. It's worrying to see the same policy from a Conservative.


This policy would quite simply destroy Conservative votes. The wider public would not be interested but those natural Conservatives who would be directly affected (as well as a healthy number of their sympathisers) would go out of their way to vote against such a policy.

Sean Fear

It's quite a while since I studied this area of law, but surely dividends are taxed as income in the hands of the recipient? They are not tax free, by any means, although I can see the director would not have to pay National Insurance on them.

But then why should he? Legally, and actually, a director/shareholder is not an employee of the company, so why should he be treated as such?


So is the plan to exempt from Corporation Tax that element of Pre-Tax Profit which goes to Retained Earnings ?

It always struck me as a little odd that SMEs have to pay tax on building their capital base to cushion them against lean years ?

Maybe this plan would work if Retained Earnings were freed of all tax and dividend distributions taxed - that would of course leave Banks and Drinks Companies and Tobacco Companies and Utilities so cash rich they could provide gold-fittings in executive offices and marble flooring.........

It is the very difficulty of establishing SMEs that should be the major concern not how to punish the Shareholders. Germany has MORe family-owned companies than the rest of Europe combined - Britain has very few family businesses that ever grow to the size of JCB...unfortunately


Andrew, England contributes enough to Scotland already. So stop complaining, you get free University education! life is not fair but only the Scottish seem to complain all the time, every time. Get back into the real world!!!

Angelo Basu

Not much more needs to be said other than that this is just about the worst and least conservative of the policies put up on this site!

As Tom Tom alludes, the SME sector is well-established as being the driver for long term economic growth and the seed bed for entrepreneurialism. The proposed measure would be highly punitive of a sector of people who are actively engaged in trying to grow new businesses and who are therefore to be supported in growing the economy. Support and preferential treatment for SMEs for economic reasons is even trumpeted by the EU for goodness sakes (even if the red tape it imposes undoes much of that good work)!

It must be plain to anyone that the director of a close company taking £32k will have generated much more for the economy than most company employees earning the same amount as a salary. Someone who runs a business that is successful and profitable enough to allow that drawing is clearly more productive than say an Outreach worker for disaffected undergraduates funded by a local authority. However, the proposal would seek to equalise the positions between a public non-job and a wealth-creator!

Mark Wadsworth

TomTom and others have inevitably raked up this concept of not taxing "retained earnings".

This is nonsense as well, just coming from the other extreme.

You have to distinguish between:
A) REINVESTED profits, that are largely untaxed (e.g. staff training, research and development, marketing, plant and machinery) and when I say "untaxed" I mean full tax relief is given (albeit over a number of years for capital allowances).
B) RETAINED profits, that just means profits not paid out as dividends. I see no reason why companies should be given tax breaks to hoard cash in the bank. This inevitably leads to companies getting too rich for their own good, underpaying dividends and ending up like GEC/Marconi.


Magical performance!! Silly me! I thought I was a member of teh Conservative Party, you know, the one that stands for law and order, smaller government, helping entrepreneurs, businessmen and other wealth creators.

Instead I find myself mixed up with a bunch of Tree Hugging, Tax Raising, Cardigan and Sandal Wearing, Europe loving, Deeply Caring and Sharing, Policy less, snivelling Liberals.

Yeah I know we are 7% ahead in the polls with this "nu Tory" stuff. Trouble is we should be 27% ahead, Dave should be feasting on the carcass of this Government, instead he is sitting down and eating lentil soup!!

Perhaps the days of the nasty Party may be over, but we must still cling to a few basic tenets of Conservatism.

If this lunatic idea became Tory policy - I woul dbe off to UKIP (or whatever its called today) faster than you could say. Recycling is fabulous and important.

Oh yes - I am a director of my own business who avails himself of this "loophole" - if it wasnt there I wouldn't bother and 20 people would lose their jobs and HM R & C would lose the £0.5m I pay them annually. Cleverer people than me would just avoid the tax anyway.


As has been said before, the dividends are after corporation tax has been paid and would still be subject to personal income tax once paid. The only "tax" that is not paid is NI which is the problem area - it is not insurance and we should get rid of it and have one simple tax on income. Company directors are often the employer as well and get little benefit from the benefits system if they are deemed self-employed.

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