‘There have been considerable misunderstandings over the number of businesses that will be affected,’ Treasury business and indirect taxation director Edward Troup has told members of the Treasury select committee.

‘We have been quite clear that the rules act as a deterrent to those who want to mitigate tax in a way that the government doesn’t intend and not as an administrative burden for small businesses.’

Troup said the Treasury estimated that the income shifting rules, which have been postponed to 2009, would recoup £260m in tax and was adamant that the costs of administering the regime would not exceed that sum.

Liberal Democrat committee member John Thurso said the rules meant that HM Revenue & Customs and the Treasury would be ‘setting director fees for small businesses in the UK’, as it would be left to tax inspectors to decide whether both partners in a husband and wife business were making a proper contribution to the business and eligible for tax relief.

Troup said the delay in implementation would give the government time to work through these issues.

‘The main reason we put the rules off is so that we can deliver something that does not have these problems,’ he said.

At the same hearing, Mike Williams, director of personal tax at the Treasury, said the government expected 3,000 non-domiciled taxpayers to leave as a result of the new £30,000 levy, claiming the move would not have a significant impact on the UK economy.