The introduction of the proposed
legislation on ‘income shifting’ has
been delayed until April 2009.
You may well remember that HMRC proposed to
legislate following their defeat in the Arctic
Systems case. This involved a husband and wife
who owned a company 50/50 and, broadly, took
the profits out by way of dividends, again
50/50. HMRC attempted to tax the dividends
solely on the husband, as he was performing
most of the work which generated the profits
of the company.
Following HMRC’s defeat in this case,
the government published draft legislation
to prevent a tax advantage being gained through ‘income
shifting’. This legislation was expected
to apply from 6 April 2008 to:
- company distributions, usually dividends;
and
- profits from a partnership.
The proposed rules have been very widely drafted
and would, in their current form, catch many
owner-managed businesses involving husbands,
wives and other family members, as well as
businesses run by non-family members, leaving
many with a substantially higher tax bill.
The government has reconsidered its position
following a period of consultation and now
believes that a further period of consultation
will ensure that legislation in this area provides
clarity and certainty for businesses and their
advisers.
The government now intends to introduce legislation
through Finance Bill 2009 and will not enact
legislation effective from 6 April 2008.
We will, of course, keep you informed of developments.
However, if you have any questions or concerns
in the meantime, please do not hesitate to
contact us.
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