'Income shifting' proposals cause controversy

Date: 2nd January 2008

New plans to introduce legislation that will clamp down on the process known as income shifting have received a mixed response from members of the accounting industry.

Government officials are hoping to eradicate the current loophole whereby businesses run by married couples or people in civil partnerships can gain a tax advantage by splitting their income in certain ways, Accountingweb.co.uk reports.

However, critics of the proposals have claimed that such a system would be extremely difficult to implement because the business relationships of people in family companies are rarely clear cut.

"The reality is that family businesses do not and cannot possibly operate on a fully arms-length basis," said Andrew Hubbard, vice president of the Chartered Institute of Taxation.

Francesca Lagerberg, technical committee chairman at the ICAEW Tax Faculty, added: "Many spouses do not have formal meetings to discuss their business arrangements - they just have their own way of working together."

The government has opened a consultation period on the proposals which will last until February 28th, with the new legislation set to be introduced in April.