Osborne ‘unlikely to hit husband and wife firms’

Legislative changes to the tax treatment of ‘husband and wife’ companies would both surprise and disappoint their advisers if George Osborne announced them in this month’s Budget.

Despite being within the scope of the small business tax review, new or existing measures to block such firms from income-splitting for tax advantages do not appear imminent, three advisors signalled to CUK.

Andrew Hubbard, of the Chartered Institute of Taxation, said: “We would be both surprised and disappointed if changes to s660, or the Family Business Tax, were announced in this month’s Budget. 

“[At most] I would hope that the Office of Tax Simplification [which is reviewing small business taxation] will set out a clear direction of travel”.

“Even if there were complete consensus on the way forward,” he continued “it will take several years of careful consultation and many iterations of draft legislation before a workable system could be achieved.”

His comments allude to the fact that the government drafted the ‘family business tax’ legislation after HM Revenue & Customs lost the Arctic Systems case, but promptly shelved it amid criticism it was unfair and unworkable.

“Clearly it is back on the agenda,” said Tom Stovold, partner at Kingston Smith, pointing to recent comments by John Whiting, OTS tax director.  “Although he acknowledged that it is ‘pretty difficult to do.’”

The accountancy firm says it is aware that there could still be “a proposal for a modified FBT” in Budget 2011, potentially clarifying how husband and wife firms should expect to be taxed.

“[But] whether this will lead to immediate legislation is far from clear,” Mr Stovold said.  “The [tax] profession believes that this is an impossible deadline [March 10] for something so complex”.

Anne Redston of Temple Tax Chambers agreed, saying that the FBT is “likely” to be considered again, particularly as the 50p in the £1 tax rate for top earners has increased the appeal of ‘income-shifting’.

“However I don’t expect that the FBT legislation will be revived [on March 23rd].” she said. “I don’t know what solution will be suggested, but I very much hope that, whatever it is, the new ‘three stage’ approach to tax consultation is adopted. This will allow any changes to be properly discussed and make it more likely that any unexpected and unfair side effects are eliminated.”

Mar 09, 2011