Budget reaction: Income shifting warning despite delay

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,

‘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

‘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‚Äôs 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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