Business tax: keep it in the family

The new family business tax proposals have been dominating my attention
recently, and apparently I’m not the only one.

Fed-up with being told by the Professional Contractors’ Group (PCG) and other
business bodies ­ plus all the tax and accountancy groups ­ that the
government’s plans for a new tax measure on ‘income shifting’ were unworkable,
the Treasury went over our heads and invited a range of small business owners in
to see them.

Presumably they thought the business people would say that the representative
bodies were getting it wrong, but as I understand it, the meeting went the other
way ­ the officials were left in no doubt that the plans will cause problems.
And there is consensus not just among the representative bodies and the small
business communities, but increasingly among politicians.

The Early Day Motion calling on the chancellor to reconsider his plans has
attracted the support of several former Labour ministers including Frank Field,
Kate Hoey and Glenda Jackson, plus Scotland’s First Minister Alex Salmond.

At a recent press briefing in the House of Commons I was joined by Liberal
Democrat and Tory Treasury spokesmen, in a remarkably consensual spirit. The Lib
Dems’ Jeremy Browne observed that red tape was the chief complaint he heard from
his constituents who are in business; this measure will only add to that. David
Gauke, the Tory MP, claimed the proposals violate the most fundamental
principles of taxation, and concluded: ‘I join Jeremy and the PCG in urging the
government to reconsider these proposals urgently.’

I have yet to meet anyone outside the Treasury and HM Revenue & Customs
who thinks the proposals are a good idea. But let’s not forget exactly why
everyone is in such strong agreement. It seems a racing certainty that this
year’s Budget is going to create a legal and administrative nightmare for most
jointly-owned businesses.

The permutations and pitfalls are endless: a wife falling pregnant while her
husband continues the business could constitute ‘income shifting’. As John
Whiting of the CIoT put it, ‘It gives a whole new meaning to the term “family
planning”.’

I hope the Treasury will listen to what everyone is telling them. It may be
that we need a more thorough review of how small businesses are taxed, but let’s
have that discussion, instead of having to put up with an ever-more complicated
tax system that is in danger of graduating from simply being a nuisance to
becoming an active disincentive to enterprise in the UK.

John Brazier is MD of the Professional Contractors’
Group