The relevant section in PN 3 said:
"The Government firmly believes it is unfair that some individuals can arrange their affairs to gain a tax advantage by shifting part of their income to another person who is subject to a lower rate of tax.
The Government has considered the responses received to the recent consultation and 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."
The original proposals have been widely criticised as unworkable by trade bodies and professional associations and it was recently reported that Treasury officials were also concerned.
The Chartered Institute of Taxation, one of the bodies which has vocally criticised the proposals welcomed the decision.
Andrew Hubbard, Vice-President of the CIOT, said: "The Chartered Institute of Taxation welcomes the Government's decision not to go ahead with its proposed income shifting legislation. The Institute's view has always been that the income shifting rules were a sticking plaster solution which did not address the real structural problems inherent in the ways that small businesses are currently taxed.
"The Institute welcomes the Government's commitment to a wider consultation over the way in which small businesses are taxed and looks forward to taking part in the consultation."
The Professional Contractors Group (PCG) was also pleased that the Chancellor has apparently listened to the growing chorus of criticism.
PCG’s managing director John Brazier said: “We are glad that Mr Darling has taken notice of not just the experts but the thousands of people who signed the petition on the 10 Downing Street website, the MPs who signed the Early Day Motion against the proposals and others. There has been a clear consensus that the FBT proposals would not have worked. We hope the next phase of consultation will result in a sensible outcome.”
The PCG has pledged to provide full input into the next phase of consultation. Mr Brazier said: “We will hold the Chancellor to what he promised today: a ‘stable business tax regime that is responsive to business needs’.
“We are glad that there is now an opportunity to persuade the Government to reconsider fully.”
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