Further reaction to Family Business Tax postponement

Despite its noticeable absence in the Budget speech in March this year, the Government's decision to delay legislation on 'income shifting' (The Family Business Tax) has been widely celebrated. Allowing for an extended period of consultation, the Chancellor postponed decision-making until 2009.

The Professional Contractors Group acted on behalf of contractors across the UK, lobbying against the proposals and inviting freelancers to petition. This petition, combined with the Early Day Motion signed by MPs, and widespread business reaction against the proposals, forced Alistair Darling to postpone the legislation. The Chancellor also spoke at length about supporting the SME sector and providing a 'stable business tax regime that is responsive to business needs'.

Damian Broughton, managing partner at Danbro, a leading provider of accounting services to contractors, was understandably delighted by the decision to defer the plans. "If the legislation had gone ahead this year it would have been incredibly detrimental to jointly run businesses. It seemed an absurd legislation, when the government openly encourages joint business ventures, to implement strategies that would make the operation of those businesses so difficult."

Many people believe that the income shifting proposals were drawn up as a direct result of the Arctic Systems case, which HMRC lost at the House of Lords. The Government claimed that shareholders Geoff and Diana Jones had gained an unfair tax advantage by distributing profits between themselves by means of dividends.

"The new rules would have been a direct contradiction of marriage and divorce policies," Damian continues. "Married couples are both equally
exposed to the risks of running a business, just as in divorce legislation, they would both be entitled to equal shares of the company. It is unfair that, when things are running smoothly, they aren't entitled to an equal share of the profits."

Article provided by Danbro - IT Contractor Accountants