The infamous income shifting proposals have been delayed. The Government however still plans to introduce legislation in the Finance Bill 2009. No decision has been made to abandon the proposal, but tax experts welcomed the move.
Whilst not referred to directly in the Budget speech, it can be found hidden away in a few paragraphs in the supplementary Budget documents:
The Government firmly believes it is unfair that some individuals can arrange their affairs to gain a tax advantage by shifting part of their income to another person who is subject to a lower rate of tax.
The Government has considered the responses received to the recent consultation and believes that a further period of consultation will ensure that legislation in this area provides clarity and certainty for businesses and their advisers.
The Government now intends to introduce legislation through Finance Bill 2009 and will not enact legislation effective from 6 April 2008.
Income Shifting Will Cost £500 Per Month On Average To Contractors
This is a great decision and a great relief to us all
Richard Mannion-CIOT
''This is a great decision and a great relief to us all,'' says Richard Mannion, chairman of the Owner-Managed Business Committee at the London-based tax expert organisation Chartered Institute of Taxation. ''The law in the form it was presented was entirely unacceptable and would have created chaos.''
The bill, which is now planned to become the law of the land in May 2009 when the Finance Bill is passed, will cost contractors and small businesses £500 per month of net income on average. The proposal targets small businesses with limited companies in which one partner earns more than the other, or is supposed to do so, but dividend income is divided according to share ownership between the partners.
An extensive consultation period was held, and whilst not a formal back down by the Government, it appears that they may have listened to experts who have repeatedly criticised the legislation calling it unworkable, badly drafted, and impossible to put into practice.
The currently planned rules will oblige small businesses with limited companies which share dividend income between spouses or partners or amongst children to justify this dividend payment on the basis of the market value of services provided by these workers.
This so-called ''arms-length'' valuation of services from children who, for example, help their parents to bring in the harvest on the farm, has been the object of intense criticism. Tax experts say that the proposal simply cannot be translated into accounting terms.
For contractors who split dividend income, this proposal will cost either an immense amount of time in paperwork as they try to come up with a market value justification for the work done by one partner answering the telephone and arranging deals, or will oblige these contractors to pay a higher rate of tax on income.
Whilst this is a mini win for small business and contractors today, the proposals are not dead yet, and still constitute a brutal attack on small business in the UK by a Government that clearly does not care.
Published: Wednesday, March 12, 2008
© 2012 All rights reserved. Reproduction in whole or in part without permission is prohibited.
Please see our copyright notice.
If you want to use any content you have seen on this site then
please request our media pack and
ask for details of our Content Licencing Service.