Budget decisions are 'crucial' to small businesses

Decisions on income shifting expected in this year's budget will be "crucial" to small businesses looking to reduce their tax bills.

The Chartered Institute of Taxation (CIOT) says that decisions regarding income shifting could mean smaller businesses with "increased tax liabilities".

Income shifting occurs when business owners move sections of their income to family members and benefit from their tax-free allowances.

Andrew Hubbard, vice president of the CIOT and tax technical director for Tenon Group, commented: "What we're looking for is whether in the Budget [the chancellor] says he's going to go ahead with the income shifting proposals, postpone them or modify them."

Income shifting made the news in 2007 - when husband and wife firm Arctic Systems had a case overturned by the House of Lords - it had been claimed by HMRC that they had avoided a £50,000 tax bill by paying one partner through dividends.