Business taxation
Income shifting
The Government will be consulting on draft legislation
to be published soon after the Pre-Budget Report that will
address the issue of ‘income shifting’. Income
shifting is where one person arranges their affairs so that
their income is diverted to a second person who is subject
to a lower tax rate, in order to obtain a tax advantage.
It is intended that the legislation will be introduced from
2008/09.
The provisions will work alongside the existing
rules on settlements and business deductions and will only
apply when the income is in the form of partnership profits
or dividends and other distributions from companies. The
new rules will not affect income from employment, interest
on savings or income from other sources. Relevant factors
in deciding whether or not there has been ‘income shifting’ in
any particular case could include the work done by the individuals,
the investment made and the risks to which the individuals
are subject through the business.
The Government has been prompted to introduce these changes
following the HMRC defeat in the Arctic Systems case.
Company owned life policies
For company accounting periods beginning on or after 1 April
2008, annuity contracts and life policies, other than protection-type
policies, will be subject to the loan relationships regime.
There will be a mechanism to give a credit for the tax treated
as paid by the insurer. This complex set of rules could mean
companies paying corporation tax each year based on the increase
in the value of the policy.
Reviews of business tax
The Government will launch three reviews this autumn on:
- How to simplify VAT rules and administration in the UK
and the EU.
- How anti-avoidance legislation can meet the aim of both
simplicity and revenue protection.
- The simplification of the corporation tax rules for related
companies.
|
