Budget reaction: Income shifting warning despite delay

Advisers warn that a massive task lies ahead to alter income shifting rules, but one-year delay is welcomed

Written by Kevin Reed

The government's delay in introducing controversial new rules on family business tax has been welcomed, but altering the legislation to make it work will be a massive task commentators have warned.

The profession said delaying the rules on income shifting, proposed after HM Revenue & Customs lost in the courts against Arctic Systems, would create a window for much needed consultation.

The proposals had been widely criticised for being impossible to administer and would create red tape for owner-managed family businesses.

'As they stand, the income shifting proposals fail the certainty and practicality criteria that are necessary for a workable tax system,' said Kevin Nicholson, UK head of entrepreneurs and private companies, PricewaterhouseCoopers.

'If the legislation is to work, it must take into account the type of small businesses that it is targeted at.'

Lisa Macpherson, national director of tax at PKF, said: '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.'

Michael Izza, ICAEW chief executive, welcomed the decision but said he had hoped the budget would go further in helping businesses and taxpayers across the country at a time of economic downturn

'Today’s budget does nothing to address the falling competitiveness of the UK nor to restore confidence overseas in the UK as a place to invest and do business,' said Izza.

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