Further delay on the Income Shifting legislation

The Chancellor's announcement that it's proposed 'income shifting' legislation will not now be introduced in April 2009 is most welcome.

It was becoming increasingly clear that such measures, which would specifically target how small businesses structure their finances to minimise tax, would be deeply unpopular just at the time that recession takes hold of the British economy, so it was not a great surprise.

Trading through a limited company and paying the bulk of remuneration by dividend rather than by salary has been the preferred option for a significant majority of businesses for quite some time and is now likely to remain so for the foreseeable future.

However, this is unlikely to last indefinitely. The Government has repeatedly stated that it 'firmly believes that it is unfair' that individuals can benefit by shifting part of their income to someone (often their spouse) who is subject to a lower rate of tax.

Our advice is to make best advantage of the existing rules during the rest of 2008/09 and 2009/10 as it is fairly clear that tax rises are planned after that to claw back the Government's excessive expenditure in future years.

If you think you might benefit by transferring some of your shares to avoid higher rate tax please do not hesitate to give us a call 01722 336647 or email Hugh Davies.