Chancellor 'may relax income shifting proposals'

Alistair Darling may be forced to rethink his plans to clamp down on 'income shifting' in the face of widespread opposition from small business groups, it has emerged.

Having already backed down over the controversial capital gains tax reform, the chancellor is now expected to ease the proposed changes to taxation for family businesses when he unveils his Budget in March, according to the Mail on Sunday.

The newspaper reports that business and accounting groups are predicting that Mr Darling will introduce a package of business-friendly tax changes next month, with a rethink on income shifting providing the "centrepiece".

Stephen Alambritis, head of parliamentary affairs at the Federation of Small Businesses, has speculated that a consultation with the prime minister may have prompted Mr Darling to revise his plans.

"Gordon Brown is very sensitive to criticism from the business community," he stated.

Income shifting is the name given to the practice whereby businesses gain tax advantages by distributing profits between family members. It was first placed under the spotlight in 2005 with the high-profile Arctic Systems case.