The new rules will mean family members have to keep records of how much work they do so they can justify the salary and dividend payments they receive to the taxman and reproportion 'shifted income' for tax purposes.
The draft proposals have been universally condemned by professional bodies and trade groups who have described them as 'unworkable', 'impractical', 'lacking certainty' and 'conceptually retarded'.
Senior Treasury officials are understood to share some of the concerns about the practicality of the arrangements and fear that relations with family businesses would be damaged.
A source familiar with the situation told the Sunday Telegraph: "They are concerned the legislation could set them back. People may think it's too difficult to comply with and not bother."
It is understood that Treasury ministers see the use of a turnover threshold as one potential means of exempting the vast majority of compliant small family businesses. But this might exempt the very companies - one-man contractors - that were the original target.
The Budget will take place on Wednesday March 12. Shout99 will be reporting any decisions relating to income shifting and all other matters affecting small businesses.
Shout99 has followed the events relating to Section 660 and income shifting. You can also read more about the background to this case and the issues at stake in Shout99's Section 660/Income shifting resource centre.
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Susie Hughes © Shout99 2008