Reply to: Income splitting looked at again

[xoggoth]

Tend to agree. Think that point should apply to a lot of things like inheritance too. How come you can't leave to another family member say?

[VectraMan]

I wouldn't be surprised to find my local garage who are run by a husband and wife and are a limited company use this. In their case the wife runs reception, deals with customers and paper work, while the husband and two employees working on servicing and fixing cars. Now is the wife's contribution of less value than the husband's?

Indeed, but where the wife is making a contribution there's no question of it being fair and reasonable to split the income. But this is a contractors' forum, not a small business forum, and you can bet that 99% of the people here who are doing this are not husbands/wives who split the running of a business, they're husbands/wives who share the ownership of the husband's business (or the wife's business) to avoid tax.

When the Tory Chancellor put this measure in (can't remember who) around the last recession he admitted there would be some tax avoidance but his aim was to encourage people to start small businesses.

But why should only married people get this incentive to start a small business? Why doesn't it apply to all people equally? You could cut corporation tax, forget the IR35 nonsense, have exemptions for employers NI, all sorts of things that would encourage people to start a small business. Why is it reasonable and "fair" to only encourage married couples to start a small business?

[SueEllen]

How many contractor businesses need initial capital?

Nobody would normally choose to share a business with somebody else, unless that somebody else made a significant contribution, either through investment or work (and a shareholder of a large company provides capital). This is how it should be.

There's only one reason somebody would give up a portion of their business to another for nothing, and that's if they were sure they'd indirectly get the benefit, say for example that they live with and share a bank account with that person. This is entirely artificial, and only exists for tax avoidance purposes.

Maybe in a contractor business but not all businesses using this avoidance measure are contractor type businesses. In my area there are loads of small businesses who are limited companies from gardening firms, catering firms and builders.

I wouldn't be surprised to find my local garage who are run by a husband and wife and are a limited company use this. In their case the wife runs reception, deals with customers and paper work, while the husband and two employees working on servicing and fixing cars. Now is the wife's contribution of less value than the husband's?

I agree that trying to stop this sort of thing amounts to the government telling people how to run their company, and that's never good, and never works well in practice. And I'd always rather see simpler tax rules than more and more complicated fudges to get around the flaws of the existing rules, as we saw a lot with the last government. So for those reasons I'm completely against this. But I can't agree that this sort of tax avoidance is in any way justified or fair or reasonable.

When the Tory Chancellor put this measure in (can't remember who) around the last recession he admitted there would be some tax avoidance but his aim was to encourage people to start small businesses.

[Sysman]

I agree that trying to stop this sort of thing amounts to the government telling people how to run their company, and that's never good, and never works well in practice. And I'd always rather see simpler tax rules than more and more complicated fudges to get around the flaws of the existing rules, as we saw a lot with the last government. So for those reasons I'm completely against this. But I can't agree that this sort of tax avoidance is in any way justified or fair or reasonable.

I think you need to look at the history of this. Tax incentives are given by various governments at various times to encourage businesses to invest in certain directions. As such you can't really call it "tax avoidance"; it was initially put there for a reason. Whether that reason is still right for conditions today is of course up for debate.

[VectraMan]

Perhaps not, but perhaps she does contribute. Perhaps she put up a significant part of the initial capital for the business. Perhaps she keeps the books. It doesn't matter. Most of the shareholders in large companies contribute f*** all to the day to day operation of the business they own a stake in, are we going to tell them that dividend income from those shares has to be taxed as if it fell due to the highest earning household member? What about if I but some shares in a big company as a gift for my girlfriend?

How many contractor businesses need initial capital?

Nobody would normally choose to share a business with somebody else, unless that somebody else made a significant contribution, either through investment or work (and a shareholder of a large company provides capital). This is how it should be.

There's only one reason somebody would give up a portion of their business to another for nothing, and that's if they were sure they'd indirectly get the benefit, say for example that they live with and share a bank account with that person. This is entirely artificial, and only exists for tax avoidance purposes.

I agree that trying to stop this sort of thing amounts to the government telling people how to run their company, and that's never good, and never works well in practice. And I'd always rather see simpler tax rules than more and more complicated fudges to get around the flaws of the existing rules, as we saw a lot with the last government. So for those reasons I'm completely against this. But I can't agree that this sort of tax avoidance is in any way justified or fair or reasonable.

[doodab]

But if you look at it the other way around, why should a married "entrepeneur" be entitled to pay less tax than a single entrepeneur?

Let's be honest, for the most part here we're talking about where the husband is a contractor, and the wife doesn't work and has no part in what her husband does. The "risk" that the wife takes doesn't extend beyond the £1 nominal value of her share.

Perhaps not, but perhaps she does contribute. Perhaps she put up a significant part of the initial capital for the business. Perhaps she keeps the books. It doesn't matter. Most of the shareholders in large companies contribute f*** all to the day to day operation of the business they own a stake in, are we going to tell them that dividend income from those shares has to be taxed as if it fell due to the highest earning household member? What about if I but some shares in a big company as a gift for my girlfriend?

[amcdonald]

WHS

Courageous male contractor takes massive risk of losing 50% to the wife who can divorce him at the wrong time

Lol more like losing 75% to the wife as well

[AtW]

Let's be honest, for the most part here we're talking about where the husband is a contractor, and the wife doesn't work and has no part in what her husband does. The "risk" that the wife takes doesn't extend beyond the £1 nominal value of her share.

WHS

Courageous male contractor takes massive risk of losing 50% to the wife who can divorce him at the wrong time

[VectraMan]

What I don't understand, and we seem to agree on this, is why the government thinks that the owners of a business being married should result in them being deprived of their tax allowance. It's mental.

But if you look at it the other way around, why should a married "entrepeneur" be entitled to pay less tax than a single entrepeneur?

Let's be honest, for the most part here we're talking about where the husband is a contractor, and the wife doesn't work and has no part in what her husband does. The "risk" that the wife takes doesn't extend beyond the £1 nominal value of her share.

[Doggy Styles]

Having shares = ownership = share of "risk" because something you own is at stake.

This is different both from working for a business and running a business, which I also understand the difference between.

What I don't understand, and we seem to agree on this, is why the government thinks that the owners of a business being married should result in them being deprived of their tax allowance. It's mental.

Yep, gotta agree with that. Your shares are at risk, whether it's a few in a megacorp or all in your own business.

[doodab]

Nope you still don't understand.

In the scenarios above you continue to take zero risk developing the business. What do you care if it fails? You'll just move on to the next thing like fred the shred. This attitude to business helps explain by far the mess the countries corporations are in, all about short term gains without a thought for the long term prosperity.

I've contributed more to the exchequer that at any time of my life with my current way of working. To force this through would be the final nail on entrepreneurship, which would see me return to some permiedoom job contributing less.

What utter bulltulip indeed.

Having shares = ownership = share of "risk" because something you own is at stake.

This is different both from working for a business and running a business, which I also understand the difference between.

What I don't understand, and we seem to agree on this, is why the government thinks that the owners of a business being married should result in them being deprived of their tax allowance. It's mental.

[Sysman]

I've contributed more to the exchequer that at any time of my life with my current way of working. To force this through would be the final nail on entrepreneurship, which would see me return to some permiedoom job contributing less.

With my cynical hat on, I think you'll find that that is the aim of this. Gotta keep the multinationals happy y'know.

[scooterscot]

If I have a job running a business for somebody else and my wife has a job running a business for somebody else and we both have shares in those businesses and the income is paid into a joint account we are taxed individually. Even if it's the same business.

If we are shareholders in the same business and we both receive dividends we are taxed individually.

If I and a friend run a business together and we both receive income and dividends from it we are taxed individually.

The only situation where expecting to be taxed individually is seen as "avoidance" seems to be when spouses both own and run the business.

What utter bulltulip.

Nope you still don't understand.

In the scenarios above you continue to take zero risk developing the business. What do you care if it fails? You'll just move on to the next thing like fred the shred. This attitude to business helps explain by far the mess the countries corporations are in, all about short term gains without a thought for the long term prosperity.

I've contributed more to the exchequer that at any time of my life with my current way of working. To force this through would be the final nail on entrepreneurship, which would see me return to some permiedoom job contributing less.

What utter bulltulip indeed.

[xoggoth]

Unfortunately I never had the opportunity as the missus was always around the upper income tax level. If you are a Mormon or a Muslim can you split it between multiple wives? That would be good.

[Churchill]

I suggested we get married to keep the tax bill down but she wasn't impressed

You old romantic, you.


On a serious note, I agree entirely with your sentiments regarding the joint taxation.