Income Shifting proposals condemned as "retarded"

The Professional Contractors Group, a leading freelancer organisation, has submitted its formal response to the Government's income shifting proposals. Such is the strength of feeling against this latest anti-enterprise measure that the PCG has condemned the proposals as “conceptually retarded”.

'Income Shifting' occurs when a small business apportions income to family members with the overall effect of reducing the joint tax liability of the beneficiaries.

The Treasury has tried to clamp down on 'income splitting' using existing legislation since 2002, however such attempts were dealt a blow with its defeat in the House of Lords over the Arctic Systems tax case, which revolved around a limited company director's right to distribute part of his company's profits to his wife.

The proposed legislation will require all small businesses that pay out dividends or partnership profits to calculate whether the recipients receive a market rate for their contributions to the success of the business.

The PCG's Managing Director, John Brazier, said: “The Government’s plans rest on fundamental misunderstandings of basic business concepts such as profit, income and risk."

“They are trying to claim that any profits from a business must be taxed as the personal income of the individual within that business whose labour generated them: this is plainly absurd, and seems to be trying to say that hundreds of thousands of businesses are not businesses at all, but just individuals who should be treated as earning salaries.”