The government plans to launch a new family business tax in the Budget
next month, which it claims is intended to tackle "income shifting."
Owners of husband and wife companies and those in business with a
family member will be affected by the proposals, which will generate
the government £200m a year.
The new laws, due to come into force from April 6th 2008, will:
* mean a significant tax rise for jointly-owned businesses where
profits are distributed equally between a husband and wife (or other
family members / civil partners) and the recipients make differing
contributions to the business - in some cases, even business owners who
are not related to each other will be hit
* deny married couples who are equally exposed to the risks of
running a business the right to an equal share in the rewards if the
business is successful
* penalise people who followed the Government's long-standing advice to set up businesses jointly
* make it impossible for businesses to self-assess their tax
bills, and leave them perpetually looking over their shoulder in fear
of an aggressive investigation by HMRC, in which they will have to
prove that they have done nothing wrong
* be totally inconsistent with divorce law, as couples will be
entitled to equal shares in the value of the business in a divorce, but
not to equal shares in the profits while they are married
* be totally inconsistent with capital gains tax rules, as couples
will be entitled to equal shares in the proceeds from business when it
is sold, but not to equal shares in the profits when they own it
* reverse the independent taxation of spouses in respect of
couples who own businesses, even though the Treasury's consultation
paper does not explain what has changed that would justify this reversal
* impose crushing burdens on small businesses who will have to
record every contribution made to the business, simply to defend
themselves against an attack from the Revenue - that time could be
better used generating wealth for the economy
* fail to recognise that dividends or other profit distributions
are a reward for taking risk and are not simply income comparable to a
salary.
“We believe that this new tax is unfair, unworkable and unjustified,”
said the Professional Contractors Group, the trade group for
freelancers, which compiled the implications.
The PCG is asking affected individuals to sign a petition against the
proposal on the Number 10 website, and is inviting them to write to
their MP in direct protest.
The Chartered Institute of Taxation has also condemned the framing of
the rules, designed to tackle a spouse who shifts their income to their
partner on a lower tax rate; by saying they fail the “test of
workability, practice and certainty.”
Further information about the "income shifting" Family Business Tax is available at www.familybusinesstax.co.uk
Feb 13, 2008
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