PBR (2): Income shifting deferred...again

The Treasury has confirmed that income shifting has been further postponed - but will be kept under review.

Their initial proposals to tackle income shifting met with widespread criticism as unfair and unworkable. They initially postponed any action until 2009 - but now it has gone even further into the long grass.

In a statement after the Pre Budget Report, the Treasury said: "The Government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax - known as income shifting.

"The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review."

The Professional Contractors Group (PCG) also expressed its great relief at the Chancellor's decision not to introduce the planned Family Business Tax on so-called 'income shifting' in 2009.

But it warned that the Government's understanding of small business is still fundamentally flawed.

PCG's managing director John Brazier said: "The UK's freelancers and other small businesses are pleased that the Government has reached the right decision, but concerned they have done so for the wrong reasons. We needed to see a firm commitment from the Government to drop the proposals and an acknowledgement that they were wrong; instead, we have a commitment to defer them and keep them under review owing to the economic circumstances."

Welcome

The Chartered Institute of Taxation (CIOT) welcomes the announcement that the Government is not to proceed with the income shifting legislation and continues to recommend that the Government reform the way in which small businesses are taxed.

Andrew Hubbard, CIOT Deputy President, said: "The current system for taxing small businesses is riddled with anomalies and inconsistencies and is need of a radical overhaul.

"But the income shifting regime would have made matters worse. It would have created a huge administration burden on all small businesses, would probably not have brought in significant additional taxation revenues and would have been a massive distraction at a time when businesses need to devote all of their energies to managing through the economic crisis."