Government urged to reconsider new rules on ‘income shifting’

Prime Minister Gordon Brown is facing pressure from the business community this week as a petition calling on him to re-examine proposed new rules on ‘income shifting’ gathers pace.

The Forum of Private Business (FPB) has now pledged its support to the campaign, claiming that the revised legislation will create a ‘new tax burden for many smaller businesses’ and may add further complications to the self-assessment process.

The petition, which was drawn up by the Professional Contractors Group, has now acquired some 3,000 signatures.

In 2007 the House of Lords ruled in favour of the family-run IT business Arctic Systems, when it confirmed that the process of ‘income shifting,’ which involves dividing income as dividends between family employees to reduce tax bills, was lawful.

Following the ruling the Government announced its intention to tighten the legislation to prevent people splitting their income in what it perceived to be an ‘unfair manner.’

‘Mr Brown has ignored the UK’s highest court, which sent a clear message that ‘income shifting’ is an established, accepted arrangement,’ said the FPB’s policy representative, Matt Goodman.

‘Yet again, the Government – which in the past had approved the practice – is insisting this is a loophole and piling yet another tax burden on smaller businesses.’

The proposed legislation will obstruct any tax advantage gained as a result of income splitting from April this year.

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