1 November 2007

Arctic Systems and the Pre-Budget Report

The feared backlash against the taxpayer's victory in the Arctic Systems Case in the summer did not come in the Pre-Budget Report (PBR). However it is only a matter of time before new legislation is implemented to prevent what HMRC call 'income shifting'.  HMRC have invented the phrase 'income shifting' to describe tax planning where an individual shares income with another person in order to utilise that person's personal allowance and/or lower rate tax band.

Measures to prevent income shifting are intended to be in place for 2008/09 and are set to affect dividend and partnership income, but not other sources such as employment income and interest on savings.

HMRC will be consulting on the measures they plan to introduce, but, as seen by the fact that the Arctic Systems Case took nearly four years to finally be decided, the issues concerned are complex.  We therefore await with interest the proposed legislation and urge HMRC to ensure it is both practical and solely addresses the issue of apparent tax planning abuse, rather than, as with some recent legislation, being far more wide reaching than initially suggested.

For further information contact Nick Haines on 01242 237661 or e-mail nmh@hazlewoods.co.uk