The government has revealed its plans to target family businesses it believes unfairly arranges income to avoid a larger tax bill.

The consultation document, Income shifting: a consultation on draft legislation, shows that the government wants family businesses to split income and dividends fairly, so that those individuals are paid at the going rate for their services.

Anne Redston of the ICAEW tax faculty said the proposed legislation was 'riddled with problems'.

It would be difficult for people to gauge how much work they did for their business compared to other family members, the current document does not provide clear guidance of how they should make a measurement, and a resource-constrained HMRC would struggle to enforce the legislation.

'This will affect all family business. There's a big red tape issue to prove [a family member has done a certain amount of work] correctly,' said Redston.

'If one said the test of good legislation is simple, fair and certain, it's none of those things.'

The Treasury said the new legislation would reduce the number of contrived arrangements.

The legislation follows HMRC's defeat in the courts against Arctic Systems, a husband and wife business that it claimed had unfairly split its income and dividends to lower its tax bill.

Further reading:

View the consultation document

Taxman issues 'confusing' Arctic Systems guidance