Income shifting proposal revived by Treasury?

Reports suggest the Treasury is working to revive its proposals on income shifting, the so-called ''Family Business Tax'' which would limit the ability for small businesses to share dividend income among spouses or partners.

According to ContractCalculator - the internet resource serving the contractor community - the proposal, which provoked a wave of protest from tax experts and small business organisations in the first Alistair Darling Budget, is being shaped in a way that will more effectively target contractors and the smallest businesses. Both of these, the Treasury believes, abuse the dividend process to reduce their tax bills unfairly.

It remains to be seen how the proposal can be shaped so that it will be effective at all. The last proposal, which was based on a market valuation of the services provided all shareholders in small companies, was found by all tax experts consulted to be entirely unworkable.

David Chaplin chief executive of ContractorCalculator, said: ''Not only is the proposal difficult to frame, but the theory itself is flawed: there is no reason why certain small businesses should be treated differently from others with regard to tax.

"Moreover, contractor companies often share the work between partners: just because one partner earns more than another does not mean that one contributes nothing to the company. The idea is discriminatory, and a deliberate attack on contractors.''

29 April 2008 © Moneyextra.com

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