Income Shifting Consultation Document

[IR35 Avoider]

I sympathise entirely with Tim123's perspective. The intention of the draft legislation is wholly fair and the intention is very simple.

I agree.

Adding Corporation tax into the examples wouldn't really make any difference.

The government could avoid the need for S134, IR35, S660a, MSC legislation, income-shifting legislation and so on by converting us to the right kind of flat tax system. In such a system, company versus personal income and employment versus investment income would all be taxed at the same rate, regardless of the quantities involved, and no matter how contractors structured their affairs the overall tax take would be identical.

In the short term they could partially address the avoidance issue by simply raising the small companies rate of Corporation tax to either 28%, or 35%, or 40%, depending on the route to a flat tax they were planning to take. I take the fact that the small companies rate is set to increase as meaning that it has finally dawned on them that they need to solve the root cause of their avoidance problem, instead of only trying to paper over the cracks by bodging the tax-system with the aforementioned legislation. I expect that we will end up with a single rate of corporation tax for all companies, though 28% is to low to completely combat avoidance, given that (if you include employers NI) employment income is taxed at 40-odd percent on amounts over about £7000. (Amounts over the £5000-odd personal allowance, from next year.)

For the record, I would rather not work than be taxed at rates above 30%, and I have always gone to the limits of the law in minimising my own tax bill. For me, one major advantage of a simple transparent flat tax is that eveyone will realise that even the poorest people are taxed at a marginal rate of 40%, and that just might affect how enthusiastic they are about the size of the welfare state.

Did you know that if all social spending were abolished, the government could completely abolish income tax, National Insurance and Corporation tax and still have a few tens of billions in change, which they could perhaps use to reduce VAT?

("Social spending" as I define it includes state pensions, other social security benefits, "free" NHS care and "free" state education.)

I'm not advocating this, just making a point about the size and cost of "non-core" activities of modern government.

[Lewis]

Someone made a interesting point on Shout99 that you just need to make your wife the sole Director to avoid this legislation. Then Condition C doesn't apply as you don't have control over the amount of income that is shifted (as you cannot control the dividends). Obviously this involves handing over control to your partner which some will not be happy with, but I am sure some will try this angle. Plus HRMC state the term “power to control or influence” (Condition C) is "not defined and is intended to be interpreted in its widest sense" I suspect they will then argue you can influence you partners's decision. Which is the same can of worms as the 'involved' conditions we saw in the MSC legislation, where people were saying 'well a newspaper or TV programme can influence a decision" so am I 'involved' with them. Anyhow ... just some thinking out loud.

[THEPUMA]

Someone made a interesting point on Shout99 that you just need to make your wife the sole Director to avoid this legislation. Then Condition C doesn't apply as you don't have control over the amount of income that is shifted (as you cannot control the dividends). Obviously this involves handing over control to your partner which some will not be happy with, but I am sure some will try this angle. Plus HRMC state the term “power to control or influence” (Condition C) is "not defined and is intended to be interpreted in its widest sense" I suspect they will then argue you can influence you partners's decision. Which is the same can of worms as the 'involved' conditions we saw in the MSC legislation, where people were saying 'well a newspaper or TV programme can influence a decision" so am I 'involved' with them. Anyhow ... just some thinking out loud.

This was one of the points I was thinking of when I said you could drive a coach and horses through it as it stands.

Two points though. Firstly, I agree with you that they will probably argue that someone has the power to influence their partner. Having said that, that is only in the guidance so not necessarily conclusive and secondly, in Arctic, the various Judges, Lords etc put a lot of sway in the fact that Mrs Jones wasn't a director and therefore didn't have control over decisions made by the Board.

Secondly, the draft legislation is subject to consultation and I would strongly suspect that this will be tightened up before it is finalised.

[tim123]

Oh come off it, please. Do you pay as much tax as you possibly can as a matter of principle? .

That is not the point that I am making, and you damn well know it.

The point is, you are suggesting that a (small quantum) error in the calculations of an example, is a reason why the legisilation shouldn't happen.

If this really is the case for the defence, where are you left when the revenue have corrected the example to the point where you can no longer fault it?

Up the creak with no paddle.

HMIT will have made no changes to the rules because of a change in the example, so what is the point in making this an issue.

tim