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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.”
Unworkable
PCG’s response also criticises the proposals for being unworkable, and placing a disproportionate burden on family businesses, who will face a mountain of red tape simply to prove that they have complied with the legislation – irrespective of whether or not they actually owe any extra tax under it.
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PCG has also written to John Hutton, Secretary of State for Business, Enterprise and Regulatory Reform, asking him to instruct the Better Regulation Executive to look into the conduct of the consultation.
Mr Brazier concluded:“It has been clear from the start that the Government decided to legislate on the basis of no evidence whatsoever. Throughout the consultation, they have refused to discuss the principle of the legislation, even though their draft Impact Assessment admitted that they could not accurately quantify the problem they wanted to address – or even confirm that there was a problem at all.”
The PCG’s formal response can be downloaded from the PCG's website.
Background
The Government introduced its income shifting proposals after it was defeated in the Arctic Systems House of Lords case. Income shifting is the process by which a business is owned by a two connected people, usually husband and wife.
The Government claims that the dividends received by a person who is subject to a lower rate of tax and makes less contribution to the income of the business should be treated as 'shifted income' and taxed as if they had been received by the higher tax payer.
The new rules will come into effect in April 2008. They have been criticised by many parties as being too complex, unworkable and leave significant areas of uncertainty. There has been media speculation that they could be some degree of climbdown in the Budget as a result of the widespread condemnation of the proposals.
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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The Editor
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