Tax review chief eyes 'husband and wife' companies

Warnings to contractors that draft rules to tackle 'husband and wife' companies splitting their income for tax advantages were never “going to go away," despite being untouched for almost three years, appear to be ringing true.

Reflecting on its remit, the Office of Tax Simplification said its small business tax review would include the treatment of spouses who shift income in the form of distributions or a share of profits.

Tax director John Whiting said the corresponding family business tax , first floated in 2007 but shelved the following year, was in his “pretty-difficult to-do box because it has been looked at a heck of a lot."

With the help of five other officials, he will “come up with some ways forward” on income-splitting, hopefully by making “some quick tweaks” to the draft regulations or, if required, after subjecting them to “serious study.”

His comments, reported yesterday, allude to the widespread criticism of the proposals, firstly from industry experts and then by the Treasury's own officials.

But they also confirm the approach he outlined to CUK immediately after his appointment; namely to identify where a tax causes difficulty and to suggest remedies and “improvements.”

In his latest interview, Mr Whiting told the Daily Telegraph he wanted to hear indsutry views on National Insurance, which he warned would be “administratively difficult” to simplify because its rates differ.

However regardless of the make-up of the OTS’s recommendations, they must be revenue-neutral and in time for the Budget in March, which some industry experts believe is an unrealistic dedline.

Even if the government only activated the OTS's income-splitting recommendations, now likely to be the successor to S660, it would boost its coffers by a reported £200m, down from the £1bn estimated in 2007. 

Dec 22, 2010