Income Shifting – changes postponed

All the professional bodies and the small business organisations (such as the FSB and the Professional Contractors Group) have been lobbying hard for the changes due to be introduced on the 6th April 2008 to be postponed, thankfully Alistair Darling has seen the light.

The proposed changes were unworkable.

What’s the fuss about? Well HM Revenue & Customs or perhaps more accurately the Government, feel that where husband and wife are in business together as partners or as shareholders in a limited company, they should not be ‘allowed’ to share the income from the business. The ‘proposal’ is that income needs to be allocated strictly in accordance with the amount of work done. So if the wife does 90% of the work, then 90% of the income should be allocated to her. This is something that is certain to be extremely bureaucratic and difficult to enforce – many of the professional bodies have called the proposals “ill thought out” and “unworkable”.

How do you determine the contribution made by each partner? Looking at time alone is surely not good enough. It is possible to contribute key ideas and strategy into a business with very little time, and tyet contribute greatly to success! Isn’t the whole idea of marriage that it is a complete partnership, each partner contributing to home or work as they decide between themselves. The Governments proposals are in fact a massive disincentive to getting married.

So further review and consultations are to take place, with some possible legislation in April 2009.

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