The Office of Tax Simplification is to look into the issues surrounding family businesses that split their income in a bid to avoid paying taxes.
John Whiting, the OTS tax director, has confirmed that it was investigating the issue along with other matters that concern umbrella company contractors such as NICs and IR35.
He said he hopes the OTS can make some tweaks that make a difference but some things will require serious consideration and research.
HMRC has been involved in a long running battle through the courts to prevent the practice of income splitting. In the Arctic Systems case, the House of Lords ruled in favour of the family-run company that was employing this technique. There has been mooted legislation but so far no laws have been passed that completely prevent the income splitting practice.
The Treasury says that clamping down on income splitting could raise an additional £200 million worth of taxes. There had been plans for legislation in 2007 but the following year, a consultation was shelved.
Mr Whiting also has his hands full trying to make sense of the IR35 rules. He said it was “the most intractable issue” since its introduction. He added that the OTs has some ideas on how to resolve the issue.
One problem that Whiting and the OTS team has identified is the way past governments have been quick to add additional legislation without clearing out some of the existing laws. There needs to be a mechanism to review and update tax legislation but this has never been done, he explained.
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