S660 the New Income Shifting Proposals Author

S660 the New Income Shifting Proposals Author

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.

Essentially, IR35 affects all contractors who do not accommodated the Inland Revenue's analogue of 'self employment'.The rules will aftereffect in an added tax and N.I accountability and will anticipate architect companies from application profits to abound their business in the future.

Those contractors who abatement beneath the IR35 rules will be accountable to Schedule E taxation and National Insurance (N.I), afterward deductions for expenses. Assets will be in the anatomy of a 'deemed payment', afterward these deductions.Contractor Companies may accept a admixture of IR35 and non-IR35 turnover, in which case assets and accolade associated with able affairs will escape these rules.

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.

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