Business tax: keep it in the family

The new family business tax proposals have been dominating my attention recently, and apparently I’m not the only one.

Fed-up with being told by the Professional Contractors’ Group (PCG) and other business bodies ­ plus all the tax and accountancy groups ­ that the government’s plans for a new tax measure on ‘income shifting’ were unworkable, the Treasury went over our heads and invited a range of small business owners in to see them.

Presumably they thought the business people would say that the representative bodies were getting it wrong, but as I understand it, the meeting went the other way ­ the officials were left in no doubt that the plans will cause problems. And there is consensus not just among the representative bodies and the small business communities, but increasingly among politicians.

The Early Day Motion calling on the chancellor to reconsider his plans has attracted the support of several former Labour ministers including Frank Field, Kate Hoey and Glenda Jackson, plus Scotland’s First Minister Alex Salmond.

At a recent press briefing in the House of Commons I was joined by Liberal Democrat and Tory Treasury spokesmen, in a remarkably consensual spirit. The Lib Dems’ Jeremy Browne observed that red tape was the chief complaint he heard from his constituents who are in business; this measure will only add to that. David Gauke, the Tory MP, claimed the proposals violate the most fundamental principles of taxation, and concluded: ‘I join Jeremy and the PCG in urging the government to reconsider these proposals urgently.’

I have yet to meet anyone outside the Treasury and HM Revenue & Customs who thinks the proposals are a good idea. But let’s not forget exactly why everyone is in such strong agreement. It seems a racing certainty that this year’s Budget is going to create a legal and administrative nightmare for most jointly-owned businesses.

The permutations and pitfalls are endless: a wife falling pregnant while her husband continues the business could constitute ‘income shifting’. As John Whiting of the CIoT put it, ‘It gives a whole new meaning to the term “family planning”.’

I hope the Treasury will listen to what everyone is telling them. It may be that we need a more thorough review of how small businesses are taxed, but let’s have that discussion, instead of having to put up with an ever-more complicated tax system that is in danger of graduating from simply being a nuisance to becoming an active disincentive to enterprise in the UK.

John Brazier is MD of the Professional Contractors’ Group