Consultation to close down 'Mom & Pop'

Despite a ruling by the House of Lords in July which concluded that existing legislation allows couples to undertake the practice of passing income between each other to save tax, the Chancellor announced that he will now undertake consultation with businesses 'shortly' to counter the practice of 'income shifting'.

Income shifting involves individuals investing in companies or partnerships to arrange their affairs to gain tax advantages by passing part of their income via dividends or partnership profits, to another person who is subject to a lower rate of tax.

While welcoming the fact that the Chancellor will consult with businesses, Grant Thornton has called for greater certainty for businesses to ensure that they know where they stand.

Francesca Lagerberg, head of Grant Thornton's National Tax Office, commentd, "The Government is going to consult with businesses, on the operation of the measure, but it is not interested in debating the principle. What businesses need now is 100% certainty as to what the future holds and clear guidance."

The press notices issued by the Treasury states that the factors that they will consider includes the work done by the individuals in the business, the investments made and the risks to which they are subject through the business. Whilst this will ensure some white lines, these factors may prove difficult to measure in practice.

"The biggest hurdle will be measuring the time spent working on the business, as the reality of the situation is that it is difficult to define the tax parameters in family business situations - for example if a conversation takes place around the breakfast table is it defined as time spent working on the business or not?" questions Ms Lagerberg.

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