 Budget defers income shifting rules for a year
- Chancellor buries announcement in paperwork rather than announcing it to the House -
12 March 2008: Alistair Darling has delayed the introduction of new income shifting legislation for a year, a move that will be welcomed by small business owners and partnerships.
However the Chancellor failed to mention the biggest move in his Budget for small businesses, choosing instead to bury the announcement in the paperwork issued to tax advisers.
The new rules, which were due to come into effect on 6 April 2008, were designed to stop small business owners splitting income between themselves and their partner, thereby reducing the tax they would pay.
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 | Lisa Macpherson, National Director of Tax at PKF welcomed the delay but was astounded that the Chancellor had not mentioned it in his speech: “It’s incredible that he didn’t mention it. This move, which we have been calling for since the impending legislation was first announced, is very important for the personal tax position of many small business owners and gives them time to put their tax affairs in order. |
“Had the draft legislation come into force next month as planned, many family businesses would have had to keep considerably more detailed records to prove that they were not shifting business income between family members to save tax. It had all the makings of a red-tape nightmare for SMEs as well as costing them more tax. Presumably the Chancellor has sought to save face by not including it in his speech.
“If the legislation is to be introduced in a year, HMRC must set out hard and fast guidelines on exactly what records are needed to establish the market rate of return for each person involved in the business; in addition, the Government needs to consider carefully the policy issues involved - they need to clarify when the ‘income shifting’ rules will be applied. There is considerable guidance from HMRC on how the rules will apply to what are essentially ‘plain vanilla’ cases, but not nearly enough on the genuinely complex real-life situations that will occur. We really need a de minimis limit and a clearance procedure for those which aren't within these rules - there must be absolute clarity.”
The draft legislation followed a defeat in the House of Lords in the Jones v Garnett case, where the Lords ruled that although Mr Jones had diverted some of the profits derived from his work for their jointly owned company to his wife, the settlements legislation did not allow HM Revenue & Customs to tax this on him because of a specific clause that exempted such transfers between spouses.
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Notes to Editors:
- PKF is a leading firm of accountants and business advisers with more than 1,800 partners and staff operating in 23 offices in the UK mainland firm, a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk.
- PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
- PKF (UK) LLP is a member of PKF International which is an association of legally independent firms with more than 14,650 people operating in 119 countries around the world.
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