In 2007 the Chancellor of the Exchequer announced his intention to prevent "income shifting": this, he claimed, is the practice of splitting income between two people, often spouses or civil partners, in order to make use of the tax allowance of the lower-earning partner.

The full proposal has now been published: click here to view it on the Treasury website. PCG members can currently give their opinions in the PCG Policy Forum, to feed into PCG's formal response.

All freelancers and small business owners are urged to:

• write to their MPs, asking them to oppose the measure and to sign the Early Day Motion asking the Government to reconsider its position (PCG has published advice on how best to go about this);
• add their name to PCG's e-petition against the proposals on the 10 Downing Street website.

PCG opposes this proposal.

• We believe that when two people are exposed to the risk of running a business, they should be entitled to share the reward.
• We also believe that this measure will require all affected businesses to keep a record of every single contribution, of whatever kind, made to a business: this will result in a crippling level of red tape.
• Inevitably, the rules will be complex: self-assessing a tax liability with any certainty will be impossible, and this will reduce incentives for taxpayers to make efforts to comply with their obligations, as they will be bound to fail - the only question will be whether or not HMRC picks them for investigation.
• It will mark a sharp divergence between tax law and divorce law: while a spouse might be entitled to over half the value of a business in a divorce, while in marriage they may not be entitled to share any of the profits.
  

The Story so Far

 An Early Day Motion has been laid in the House of Commons expressing alarm at the proposals.

PCG Policy Briefing on "Income Shifting" (October 2007)
A summary of the problems with the new proposals.

PCG Policy Briefing on "Income Shifting" (January 2008)
A political briefing on key arguments against the new legislation.

PCG Notes on "Income Shifting"
A more extensive consideration of the difficulties with any possible approach to restricting "income shifting"; written before the Government's full proposals were published.

Anne Redston article on "Income Shifting" (January 2008)
Originally published in Taxation magazine, reproduced with permission.

The proposals regarding "income shifting" arose from the Government's historic defeat in the Arctic Systems case; for details, please see PCG's page on S660A and the Arctic Systems case.

PCG has issued its formal response to the proposals, and also a commentary on the consultation document. In addition, PCG is complaining to the Better Regulation Executive about the conduct of the consultation.