Businesses given respite on income-shifting

By Jennifer Hill

LONDON (Reuters) - Chancellor Alistair Darling has quietly delayed the introduction of new income-shifting legislation for a year -- a move that will be welcomed by small business owners and partnerships.

The Chancellor did not mention the biggest move affecting small businesses in his Budget speech on Wednesday, choosing instead to bury it in paperwork issued to tax advisers.

The new rules, which were due to come into effect on April 6, were designed to stop small business owners splitting income between themselves and their partner, thereby reducing their tax burden.

The proposed new anti-avoidance legislation was in response to a crushing defeat for the taxman in the "Arctic Systems" case -- viewed as a test case for thousands of small businesses.

But Darling delayed the implementation of the new "income shifting" rules for 12 months for more consultation.

Patrick King, tax principal at accountancy firm MacIntyre Hudson, said: "The Chancellor's decision to delay this unworkable piece of legislation is a welcome one.

"It was designed to stamp out income-shifting by examining the commercial contributions each individual brought to the table, but the legislation was couched in such obtuse terms, it was almost impossible to ascertain exactly what dividend was permissible for any given commercial contribution.

"For now, this ill-conceived initiative has been put on the back-burner. With a bit of luck it may well fall by the wayside altogether."