Press Room
Chancellor gives himself breathing room to look at income
shifting
Leading business and financial adviser Grant Thornton says that
the Government’s move not to introduce measures to counter 'income
shifting' immediately, but rather to press ahead in the Finance
Bill 2009, might only delay misery for entrepreneurs unless it is
accompanied by a review of the policy.
The move follows the decision to reverse the House of Lords'
decision in Jones v Garnett* (Arctic Systems Ltd case) and
is likely to leave entrepreneurs with higher tax bills and more
complexity to contend with if implemented without significant
amendment.
Francesca Lagerberg, Head of the National Tax Office at Grant
Thornton UK LLP, said: "The new rules, which will now come into
effect during 2009 after a further period of consultation. Unless
they are reviewed extensively they will add to the burden of
complexity and red tape for owner-operated companies, a section of
the economy that the Chancellor pledged to support."
"The Government has pursued this issue with great force since
2007, and although delayed, there is no suggestion that the policy
is up for consideration. That would be a wasted opportunity. The
time delay should be used as a chance to find a more realistic
solution. There is no silver bullet here to satisfy the
Government's belief that there is hidden tax avoidance and the
entrepreneur's arguments that there is not. "
"We welcome the fact that there is to be further consultation
and that the Government has listened to the strong representations
made in this area. However, we would not want businesses to be left
in limbo - fearing an unknown future tax. Therefore we hope that
consultation begins as soon as possible to find a pragmatic
solution to this issue.'
The income shifting rules are to stop individuals transferring
income between each other in a tax-advantageous way. In particular,
HMRC is looking to catch the type of situation where a 40%
taxpaying spouse runs a business and their lower rate taxpaying
spouse does little or no work but takes at least half the dividend
from the company or half the profits from the partnership.
However, it is not just married couples that will be caught out
by the new rules either as the proposals are potentially aimed at
any situation where an individual would not enter into a
transaction on the aforementioned basis if he or she were acting
commercially.