Reply to: Income Shifting Consultation Document

[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

[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.

[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.

[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.

[NotAllThere]

...undeserving cases of a couple earning a packet and paying themselves the absolute min in terms of salaries and taking the mickey on the divi side. I have operated a Ltd. Co for 13 years and (based on last accounts) salaries were 30 for me 5 for wife plus divis - still 50/50...

Hang, you go all moralistic on the Jones for min salary/max divi to avoid tax, which was and still is perfectly legal, Yet you consider that your sharing your income with your wife, in order to avoid tax, which this government has decided is a naughty exploitation of a loop-hole, is all in order and above board.

Is this one of those irregular verbs?

I prudently manage my tax liability,
You are avoiding tax
He has to take his case to the highest court in the land...

[zathras]

Seems to me that money spent on fighting the Arctic case could have been better spent elsewhere (maybe lobbying or page adverts). I quit the PCG just after that as I thought they shouldn't be gloating at the publicity received for one of the most (IMO) undeserving cases of a couple earning a packet and paying themselves the absolute min in terms of salaries and taking the mickey on the divi side. I have operated a Ltd. Co for 13 years and (based on last accounts) salaries were 30 for me 5 for wife plus divis - still 50/50, but was planning to change to maybe 70/30. However this will force me to close my company after all these years. I wasn't expecting anything less from this vindictive gov't, however I was expecting more from the pcg. To me they were like King Canute, fighting the tide. What did they expect to gain from this?

It says 'Not Worth Listening to' under your name and this proves it. Arctic was about more than one years income. The original bill was a whopping £43,000 plus interest. The tax office was wrong, it was proved so in two of the highest courts in the land.

The tax office were nothing more than bullies. Had that bill hit anybody else then they may not have had the PCG, they would have needed to mortgage their house to pay this bill. That is a bill that they did not legally or morally owe. The tax office gave way on most of that bill when it got to the courts, so the tax office fought that case all the way to the HoL over £7,000. It cost an estimated £500,000 that the tax office is going to have to pay.

Income sharing of this kind was expected when the independent taxation of spouses was brought in. It was expected by BusinessLink - part of what was the DTI, last time I checked part of the same government as the Treasury. Advisors all understood that this was a legitimate form of tax planning. So the PCG was perfectly correct in supporting one of it's members, that after all is what it is there for.

The CC and the BoD were all aware that the Treasury could and probably would change the rules. They were aware before the Chancellor got up and said he was going to. But it was perfectly right to challenge in anyway an attempt to misapply tax law and to backdate it to the maximum possible.

[WotNxt]

Seems to me that money spent on fighting the Arctic case could have been better spent elsewhere (maybe lobbying or page adverts). I quit the PCG just after that as I thought they shouldn't be gloating at the publicity received for one of the most (IMO) undeserving cases of a couple earning a packet and paying themselves the absolute min in terms of salaries and taking the mickey on the divi side. I have operated a Ltd. Co for 13 years and (based on last accounts) salaries were 30 for me 5 for wife plus divis - still 50/50, but was planning to change to maybe 70/30. However this will force me to close my company after all these years. I wasn't expecting anything less from this vindictive gov't, however I was expecting more from the pcg. To me they were like King Canute, fighting the tide. What did they expect to gain from this?

Why will this force you to close your company? You are doing things the way "they" want you to and what the new rules are intended to enforce. Aren't you?

[THEPUMA]

Can you just give you wife a £700K property? Doesn't she need to pay any capital gains tax?

No. Interspousal transfers are exempt from CGT. They may have had to pay some stamp duty if there was a mortgage of over £120K on it.

[Dow Jones]

Pyrhic Victory!

Seems to me that money spent on fighting the Arctic case could have been better spent elsewhere (maybe lobbying or page adverts). I quit the PCG just after that as I thought they shouldn't be gloating at the publicity received for one of the most (IMO) undeserving cases of a couple earning a packet and paying themselves the absolute min in terms of salaries and taking the mickey on the divi side. I have operated a Ltd. Co for 13 years and (based on last accounts) salaries were 30 for me 5 for wife plus divis - still 50/50, but was planning to change to maybe 70/30. However this will force me to close my company after all these years. I wasn't expecting anything less from this vindictive gov't, however I was expecting more from the pcg. To me they were like King Canute, fighting the tide. What did they expect to gain from this?

[Lewis]

Does this not count as income shifting ???

http://www.telegraph.co.uk/news/main.../nsarah107.xml

Can you just give you wife a £700K property? Doesn't she need to pay any capital gains tax?

[Bluebird]

Does this not count as income shifting ???

http://www.telegraph.co.uk/news/main.../nsarah107.xml

[NotAllThere]

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

At the time the law is passed, its intention may well be clear. However, that will not stop HMRC from seeking to expand the scope of the legistation to maximise tax take, perhaps under instructions from future political masters. (As happened with 660a).

Further, while perhaps for the majority of contractors it is clear that their spouses make no contribution, and therefore there is no scope for income sharing, the difficulties arise where the spouses do make a contribution. And it is for this minority that it is essential that the legislation is clear.

And I feel I ought to declare a (non-)interest. I own all my shares since CoSec is over the higher rate limit anyway so there's never been any point. that doesn't mean I am not extremely angry at this blatant attack on my freeedom of choice.

I too have a non-interest. I live and contract abroad. There's no tax relief on dividend income (no IR35), and taxation is on the family (all income is shared ). But I still find the draft proposals worrying.

[malvolio]

Which is?

The PCG's point is that if you want to have consultation, then have consultation and not some pretendy vague proposal released with too little time to debate and counter-propose that they will implement because tere wasn't time to debate it...

The real answer is simple. Legally create a third class of worker so we have employee, contractor and employing business. Define taxation breaks and benefits thresholds for each. Forget S134c, you won't need it since contractors won't need companies.

And I feel I ought to declare a (non-)interest. I own all my shares since CoSec is over the higher rate limit anyway so there's never been any point. that doesn't mean I am not extremely angry at this blatant attack on my freeedom of choice.

[THEPUMA]

Oh come off it, please. Do you pay as much tax as you possibly can as a matter of principle? Because that is what the intent of NL's whole fiscal policy is based on - they haven't got enough income to pay for their wasteful and pointless programmes, they're running out of borrowing so they need more tax. Fairness and social equality are sod all to do with it.

As for your earlier point about changing inconvenient laws, then fine, they can do so. There is a due process which they are pretending to follow. As usual, they will ignore the incovenient bits of the law (that they passed) when necessary, in this case that the consultation from all sides including HM Opposition, is saying the proposal is unfair and unworkable in practice. We really don't want another five years argument and court cases to make it work, we want simplicity.

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

I think as it stands we accountants (and consequently you contractors) will be able to drive a cart and horses through the draft legislation but that doesn't mean that the intention isn't simple. So anyone who wants to comply with the intention of the legislation, will be able to do so. I'm sure they won't, as they haven't done with IR35.

We will all be able to come up with complex scenarios where it is difficult to work out what to do, but in 90% of cases, it will be obvious and in the other 10% if you take a common sense approach, you'll come up with a reasonable answer, which I think they will accept.

[malvolio]

They are referring to pre-tax amounts, which is the correct way of referring to dividends. Once again, this is a grammetical isssue.

tim

Oh come off it, please. Do you pay as much tax as you possibly can as a matter of principle? Because that is what the intent of NL's whole fiscal policy is based on - they haven't got enough income to pay for their wasteful and pointless programmes, they're running out of borrowing so they need more tax. Fairness and social equality are sod all to do with it.

As for your earlier point about changing inconvenient laws, then fine, they can do so. There is a due process which they are pretending to follow. As usual, they will ignore the incovenient bits of the law (that they passed) when necessary, in this case that the consultation from all sides including HM Opposition, is saying the proposal is unfair and unworkable in practice. We really don't want another five years argument and court cases to make it work, we want simplicity.