The new income shifting proposals
Proposals have just been published by the Government to negate “income shifting” between individuals.
This will be of interest to family businesses, who share profits by way of dividends between husband and wife.
The Government has declared its intention to tax a husband and wife company in relation to the parties input into the business.
Brief background
The Government was finally defeated in the Arctic systems (Jones v Garett) case in the House of Lords in July this year, after four years of legal action. In this case all the income was earned by the fee earning spouse yet the dividends were shared. This angered the Government, a non fee earning spouse receiving income from the company yet contributing little to the company. The day after the final verdict was given the Government made a statement of its intent to correct this perceived injustice.
Probable conclusion
It is widely though that the result of this exercise will be legislation to deem the dividend, received by the non fee earning shareholder, as the dividend of the fee earning shareholder.
Our concerns
Hastily drafted legislation is often badly drafted legislation. This consultation document will no doubt lead to an increased compliance burden on family business and more uncertainty. This will undoubtedly be tested in the courts, and lead to a similar outcome to when IR35 was introduced.
We await the results of the Government consultation.

http://www.candsfinance.co.uk

Click here for HMRC consultation document on income shifting