Government to increase tax on family businesses

Published:  22 December, 2010

LONDON: Partners in family businesses could see their tax rise following a review by the Office of Tax Simplification's (OTS) of small business taxation.

The Treasury has long considered the ability of husbands and wives to split the income generated by family businesses to reduce their tax bills as "unfair" and believes a clampdown could raise £200m.

John Whiting, tax director at the OTS, said his team was looking at income splitting alongside other controversial taxes on businesses, such as National Insurance and IR35, which tackles self-employment.

Whiting said in an interview for Daily Telegraph that income splitting is in the "pretty-difficult-to-do box because it has been looked at a heck of a lot".

"We have to come up with some ways forward. I hope we can come up with some quick tweaks that can make a difference, but I am no under illusions that some of the things we could come up with will require some serious study," he said.

HM Revenue & Customs has successfully argued in court that a business had evaded tax because the couple drawing the dividends from their business paid the monies into a joint bank account.

To clarify the law, the Treasury said it would legislate in 2007 but a consultation was shelved in 2008. Whiting said: "The challenge of the small business project is that we have got to identify what really causes difficulties and come up with recommendations for improvement."

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