Income Splitting - Advice for IT Contractors

Parasol PAYE umbrella company
Over 32,000 satisfied contractors.
Get paid quicker. Call 0800 5836000.

Income Splitting - Advice for IT Contractors

Posted Nov 19, 2007

New legislation that will hit joint-business owners who split their incomes to ease the tax burden will come into force next April - as announced in the Pre-Budget Report.

Contractor accountants, Danbro, have provided the following overview for Contract Eye readers.

What is Income Splitting?

The legislation is aimed squarely at 'husband and wife' firms, which, like tens of thousands of other businesses, draw payment by income shifting between spouses. This is being introduced following the Arctic Systems case.

HM Revenue & Customs spent four years, in vain, trying to persuade judges that Geoff and Diana Jones, the company's owners, avoided tax in this way and so broke the law.

The government has announced that draft legislation to take effect from 2008/09 to address income shifting will shortly be issued for consultation.

The legislation will work alongside the existing rules on businesses deductions and settlements, and will seek to remove the tax advantage obtained from income shifting.

It would only apply when the income is in the form of distributions from a company (dividends) or partnership profits.

HMRC will provide 'practical guidance' on the legislation as to the circumstances which may not be caught by the legislation.

Relevant factors to consider when establishing whether or not income shifting has taken place could include the work done by the individuals in the business, the investments made and the risks to which they are subject through the business.

Income from employment, interest on savings and any other source will not be affected.

Please scroll down for related articles

Contractor Services

Clarity - Chartered Accountants - Fixed Fee £95/month. No hidden extras.
Together we're stronger! - Join PCG, representing contractors
Professional Indemnity Insurance - Essential contractor PI cover
AccountsNet CA - PCG Accredited. Great Value @ £65pm - View Demo
inniAccounts - Online Accountants, 24x7 Access, Free Demo
Qdos - IR35 experts - Providers of low cost contractor insurance
Free Umbrella Company - Save over £1400 p.a. on fees with Springboard
Free IR35 & Tax Review - Call ICS on 0800 195 3750
K & B Accountancy Group - Fixed fee contractor accounting only £75pm
Parasol - the UK's favourite umbrella company
planIT Services - Umbrella, Ltd company, free formation & IR35 review
Cloud 9 Group - Umbrella Solutions only £9.95 per week
Key Directories: Contractor Accountants | Umbrella Companies
Financial Services: Income Protection | Contractor Mortgages | Pensions
More Services: Compare Business Insurance | Company Formation

Government should be careful over income shifting plans
A leading tax body has said that in these turbulent economic times, it is more important than ever that the Government tackles "income shifting" in a careful manner.

Income Shifting - Government plans to revive proposals
According to a contractor news site, The Treasury is working to revive its proposals on income shifting, which would limit the ability for small businesses to share dividend income among spouses or partners.

Over 7,500 sign petition against income shifting proposals
The online petition against income shifting (or the "family business tax") has closed, having collected over 7,500 signatures.

Second Income Shifting EDM calls for sensible measures on family business tax
A second Early Day Motion has been tabled calling on the Government to use the income shifting delay as an opportunity to come up with a more fair way to deal with "family business taxation".

Income shifting legislation delayed in Budget 2008
Although Alistair Darling didn't even mention income shifting in his Budget speech today, hidden away in a Treasury press release comes the news that the proposed income shifting legislation will be postponed until 2009.

Income Shifting - pressure grows for Treasury re-think
Following many months of opposition to the Government's controversial "income shifting" proposals, the Treasury is under great pressure to bin the legislation.

Contractor group slams income shifting proposals as "conceptually retarded"
The PCG has condemned the Government's latest anti-enterprise brainwave, the so-called "income shifting" tax, as "conceptually retarded".

Income Shifting - might Chancellor back down on proposals?
There is mounting pressure on the Treasury to backtrack on its controversial plans to ramp up tax on family firms in the recently announced income shifting proposals.

Income Shifting - what it will mean for IT Contractors
We take a look at how the proposed income shifting legislation would impact IT Contractors.

Dedicated site set up to fight "income shifting" proposals
The PCG has set up a site dedicated to the campaign against the Government's proposed "income shifting" measures.

IoD calls income shifting legislation technically defective
The IoD says that the Government's proposed income shifting legislation is technically defective and hopeless.

Income Shifting - Contractors urged to write to their MPs
The PCG has welcomed an Early Day Motion in the House of Commons, attacking the introduction of so-called "income shifting" tax legislation - a tax on family businesses.

Contractors urged to sign Income Shifting petition
Contractors are being urged to protest against the so-called income shifting legislation by signing a petition on the No.10 website.

How much will the income splitting legislation cost you?
How much more tax will you pay if you are caught by the new income shifting legislation?

Income Shifting Legislation - CIOT has grave concerns
The CIOT says it has grave concerns about the implications of the Government's proposed "income splitting" legislation.