How Income Shifting proposals will affect IT Contractors

Income Shifting Proposals
Income Shifting Proposals

Income Shifting Proposals

This article, on income shifting, is from the Professsional Contractors Group (now IPSE).

In 2007 the Chancellor of the Exchequer announced his intention to prevent “income shifting”. This, he claimed, is the practice of splitting income between two people, often spouses or civil partners. This is in order to make use of the tax allowance of the lower-earning partner.

IPSE Urge all freelancers and small business owners to:

1. Write to their MPs, asking them to oppose the measure and to sign the Early Day Motion asking the Government to reconsider its position.

2. Add their name to the PCG’s e-petition against the proposals on the 10 Downing Street website.

IPSE opposes this proposal

1. We believe that when you expose two people to the risk of running a business, this entitles them to share the reward.

2. We also believe that this measure will require all affected businesses to keep a record of every single contribution, of whatever kind, made to a business. This will result in a crippling level of red tape.

3. Inevitably, the rules will be complex. Self-assessing a tax liability with any certainty will be impossible. This will reduce incentives for taxpayers to make efforts to comply with their obligations, as they are bound to fail. The only question will be whether or not HMRC picks them for investigation.

4. It will mark a sharp divergence between tax law and divorce law. While a spouse might be entitled to over half the value of a business in a divorce, while in marriage, they may not be entitled to share any of the profits.