‘Income
Shifting’ Legislation Delayed
The introduction of the proposed legislation on ‘income
shifting’ has been delayed until April 2009.
You may well remember that HMRC proposed to legislate
following their defeat in the Arctic Systems case.
This involved a husband and wife who owned a company
50/50 and, broadly, took the profits out by way
of dividends, again 50/50. HMRC attempted to tax
the dividends solely on the husband, as he was
performing most of the work which generated the
profits of the company.
Following HMRC’s defeat in this case, the
government published draft legislation to prevent
a tax advantage being gained through ‘income
shifting’. This legislation was expected
to apply from 6 April 2008 to:
- company distributions, usually dividends; and
- profits from a partnership.
The proposed rules have been very widely drafted
and would, in their current form, catch many owner-managed
businesses involving husbands, wives and other
family members, as well as businesses run by non-family
members, leaving many with a substantially higher
tax bill.
The government has reconsidered its position following
a period of consultation and now believes that
a further period of consultation will ensure that
legislation in this area provides clarity and certainty
for businesses and their advisers.
The government now intends to introduce legislation
through Finance Bill 2009 and will not enact legislation
effective from 6 April 2008.
We will, of course, keep you informed of developments.
However, if you have any questions or concerns
in the meantime, please do not hesitate to contact
us.
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