This means that company directors and those earning dividends will have seen a cut in the tax-free dividends environment since the removal of the 10% notional tax credit in 2014-15 (equivalent to £10k in tax-free earnings) to the current £5,000 allowance with a further £3,000 reduction from 2018/19. This will now be cut substantially to £2,000.

This is expected to raise £870m in 2019-20 alone with expectations of a revenue take around £900m a year as a result of the dividend change.

Philip Hammond pointed to the discrepancies in the tax system which means that employees under PAYE are often taxed at much higher rates than self employed and those in personal service companies.

'This will reduce the tax differential between the employed and self-employed on the one hand and those working through a company on the other, and raise revenue to invest in our public services. It will ensure that support for investors is more effectively targeted, and make the total amount of income they can receive tax-free fairer and more affordable.

'This takes account of the increased ISA allowance, which will rise to £20,000 from this April, as well as further increases to the tax-free personal allowance which is additional to the dividend allowance.'

The move will hit shareholder directors in business who frequently use dividends as part of their pay packages.

The rates of tax paid on dividends is linked to the personal allowance, starting at 7.5% for basic rate, 32.5% for higher rate, and 38.1% for additional rate taxpayers.

The £2,000 allowance will apply from 6 April 2018.

Legislation will be introduced in Finance Bill 2017 to change the amount of dividend income that is charged at the nil rate by section 13A to £2,000 from tax year 2018 to 2019.

‘The changes to self-employed NIC rates and the dividend allowance do not reconcile with the statement to encourage and support entrepreneurs and innovators. When combines with the business rate changes, business owners will rightly feel targeted,’ said Robert Pullen, senior manager at Blick Rothenberg.

He added: ‘Two years after a crippling 7.5% increase to dividend tax rates, the more than halving of the £5,000 dividend 0% band to £2,000 is a hammer blow to small business owners.’

The measure will also hit shareholders with smaller portfolios, despite attempts to highlight the benefits of ISAs.

‘The £5,000 dividend allowance took effect less than 12 months ago but it is already being reduced to £2,000 from 6 April 2018. While the government cited this change to reduce the tax differential between self-employed individuals operating through a personal company and employed individuals, people with a portfolio of quoted shares will also be adversely affected,' said Nimesh Shah, partner ta Blick Rothenberg.

Legislation will be introduced in Finance Bill 2017 to change the amount of dividend income that is charged at the nil rate by section 13A to £2,000 from tax year 2018 to 2019.