Tax centre
Pre-Budget Report 2007
Business taxation
Income shifting
The Government will be consulting on draft legislation to be published soon after the Pre-Budget Report that will address the issue of ‘income shifting’. Income shifting is where one person arranges their affairs so that their income is diverted to a second person who is subject to a lower tax rate, in order to obtain a tax advantage. It is intended that the legislation will be introduced from 2008/09.
The provisions will work alongside the existing rules on settlements and business deductions and will only apply when the income is in the form of partnership profits or dividends and other distributions from companies. The new rules will not affect income from employment, interest on savings or income from other sources. Relevant factors in deciding whether or not there has been ‘income shifting’ in any particular case could include the work done by the individuals, the investment made and the risks to which the individuals are subject through the business.
The Government has been prompted to introduce these changes following the HMRC defeat in the Arctic Systems case.
Company owned life policies
For company accounting periods beginning on or after 1 April 2008, annuity contracts and life policies, other than protection-type policies, will be subject to the loan relationships regime. There will be a mechanism to give a credit for the tax treated as paid by the insurer. This complex set of rules could mean companies paying corporation tax each year based on the increase in the value of the policy.
Reviews of business tax
The Government will launch three reviews this autumn on:
- How to simplify VAT rules and administration in the UK and the EU.
- How anti-avoidance legislation can meet the aim of both simplicity and revenue protection.
- The simplification of the corporation tax rules for related companies.