Dear Mr Hammond, don’t worry about NICS or dividend tax thresholds, it’s late payment that needs sorting out.


As you will be aware, since your budget the talk among the small business community has all been of NICS and dividends.

The rise in self employment has gone from 3.8m in 2008 to 4.6m in 2015 and the government, of which you are a part, thinks that some of the reason for this increase comes down to tax advantages which the self employed enjoy and which the employed do not, hence the intended rise in NICS, hence the consternation among the self employed – but that all over now.


Additionally the number of registered businesses has grown in the past four years especially between 2013 and 2014. That’s pertinent because business owners often pay themselves tiny salaries that fall below their income tax threshold and then top up their income via dividends from company profits – your predecessor thought this was grossly unfair too.

It is true that small business owners do this because it’s was more tax efficient way to derive an income but they are simply making the most of the tax law just as huge American multinationals make use of the Double Irish, except, for small business owners the sums are smaller and the risks greater.

As you will know income in the form of a dividend can only be taken if the company has made a profit in the financial year or in previous years. No profit no dividend, no dividend no personal income for the hapless entrepreneur. Even if the company has a pot of money in the bank, if it doesn’t turn a profit then no dividend. Fair enough but one of the reasons why a company may not make a profit or only a slim one is down to (re)investment. Reinvestment drives growth which generates jobs.


Every big company was once a small company, and for a small company to become big and employ many people it needs to invest either using externally sourced capital or via organic growth and internally generated revenue. Most external investors will want a return on their money so they will need to see income and profit or at the very least a credible projection of income and profit.

For growth to happen organically income needs to be rolling in, on top of that the hard working entrepreneurs who take risks to set up new businesses, some of which may one day go on to provide jobs, also need to eat and feed their families. So when you decide to lower the tax threshold on dividends you’re basically making it harder for business owners to reinvest in their companies and grow them, that’s because if business owners are being taxed more on their dividends they will need to issue more dividend to meet their personal financial requirements leaving less for reinvestment. We may be talking about small amounts for now, but from humble beginnings…..

But maybe that’s all a red herring all if the company hasn’t made a profit due to late payment of overdue invoices.


Late payment blights the UK business landscape and costs the economy £2.5bn (there’s a big number for you) each year according to the FSB. It’s also responsible for the demise of 50,000 businesses. The total amount of money currently held up in overdue invoices is conservatively put at about £30bn (now there’s a really big number for you). Because most small businesses will operate on cash accounting that means your department won’t be able to levy VAT taxes on the unpaid income where relevant. Not only that but about 5% of invoices never get paid at all, that’s £1.5bn which equates  to £300m in lost tax receipts, double your proposed NICS take, assuming 20% corp tax and no accounting shenanigans.

It’s said that the first five years of trading are the most precarious for a new business. Given that so many people are opting for self employment or starting up new businesses it is now, more than ever before, vital that these people and businesses are paid on time by their customers.

So often lip service is paid (by earnest and sincere politicians) to the small business community, describing it as the backbone of the economy and yet comparatively little is done to tackle the issue of late payment.

In fairness, as examples of government backed initiatives it’s easy to point to the ineffective Prompt Payment Code or to the flawed Duty to Report or the Small Business Commissioner… no wait, we can’t point to the SBC because there’s nobody yet filling the role to actually point to.

The reality is that government inertia means small business owners and entrepreneurs need to do what they have always done in other areas and what characterises them as a group of people, they need to take matters into their own hands.

Yes there is a risk to customer relationships but one has to ask what the value is of a customer who won’t pay on time or in some cases won’t pay at all. Certainly the value to the exchequer will be diminished.

As we know from usage of The Prompt Payment Directory construction and related industries, employment, retail, legal are all sectors where late payment occurs.

There are plenty of solutions to help with the debt collection process (some of them admittedly unappetising) but better still, and less expensive, is the process of due diligence in advance of doing business with a new customer. This is where the SME hive mind can end up stepping in where government policy stops.

We’ve all become used to giving online feedback, anonymously or otherwise, for goods or services that we receive or interactions we’ve had. The online hive mind helps us make the right decisions based on the collective experiences both positive and otherwise. This is how we can circumnavigate the late payment minefield and continue to get paid while investing in the future and even paying our taxes.

Not only that but if the UK is to present itself as an attractive environment in which to do business as it prepares to leave the EU and in the aftermath of that event, it will need to find a more effective way to step out from under the cloud of late payment.

All that said, it’s the government’s job to help business help itself but the focus on taxing NICS & dividends is wrong headed.

Your Sincerely, etc etc…..