Arctic rules 'will wipe out red tape gains'

The government’s post-Arctic family business tax proposals will wipe out the
government’s progress in cutting red tape, the Chartered Institute of Taxation
has said.

In an open letter to financial secretary to the Treasury Jane Kennedy,
president Rob Ellerby said: ‘The Chancellor has set out his vision of
simplifying the tax system, but these proposals fly in the face of that vision.
The Administrative Burdens Advisory Board has the task of reducing admin burdens
of business, but these proposals are, if enforced, likely to wipe out any gains
made by that body.’

The ABAG was set up in the wake of a KPMG report into the burden of complying
with tax in the UK for small businesses.

The ‘income-shifting’ proposals, as they are known, see elements of
arms-length transfer pricing rules applied to family-owned businesses. Husbands
and wives will have to separately record their contributions to the business and
be paid a market rate for their work, preventing dividend and salary structures
that maximise the use of available tax allowances.

Institute president Rob Ellerby said there was ‘extreme disappointment’ over
the quality of the goverment’s document, which discusses new legislation to deal
with income shifting between familiy members as was highlighted by the Arctic
Systems tax battle.

Rather than solving the problem the document would ‘unleash enormous
administrative burdens for thousands of family businesses’.

While agreeing that small business tax was unsatisfactory, and in need of
reform, a proper and thorough review was required.

‘The proposals seem to us to fail the tests of workability, practicality and
certainty. They display little understanding of the businesses that Government
seeks to tax,’ said Ellerby in the letter.

‘We trust that you will be open to a proper discussion with representative
bodies on these proposals, which in their current form are simply not “fit for
purpose”.’

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