As you may already be aware from previous updates, the Government has pledged to put an end to “Income Shifting” or as it is more commonly known, husband and wife tax planning.

Income shifting is the practice of owner managers of businesses moving income that is rightly theirs to a spouse instead, in order to gain a tax advantage.  This may be done by paying a non-working spouse a wage or maybe by gifting shares to the non-working spouse and sharing the dividends generated by the business.

Although the drafting legislation to put an end to this has been put to one side, this does not mean that it will go away completely and your affairs should be reviewed regularly to ensure that you not only comply with the rules now, but that you will also comply with the rules when new legislation is drafted.

If you are an owner manager, there are a few ways to plan ahead so that you do not fall foul of any new rules as and when they are created.

If your spouse has no involvement with the business at all, this will be a prime target for HM Revenue & Customs as they will question how the spouse is generating the income they are being given and therefore if they are entitled to it.

Structuring your business as a partnership or a Limited Liability Partnership, with your spouse as one of the members, is the start of a defence against any income shifting claims.  A named partner is responsible for a share of any liability as well as a share of any reward and therefore the spouse has an ‘involvement’ with the business.  This alone will not however be enough of a defence should HM Revenue & Customs require evidence that the income shifting legislation should not apply to you.

If however it can be shown that the spouse is making a contribution to the business in keeping with the amount of reward received, this is a further defence that can be used. 

Examples of this would be if the spouse contributes to the business planning, talks to clients and customers, handles research or marketing, does the book keeping, deals with credit control issues or does the banking.  They are involved with the day to day operation of the business and are therefore ‘earning’ the income that they are receiving.

If there is joint financial risk involved, for example if there is a charge on jointly held property or funding has been supplied, this is a further form of defence that can be called upon if necessary.

At A4G Accounting LLP we review our clients’ positions on a regular basis but if you are concerned about any of the above, please do contact us.  A change of business structure could be beneficial in relation to the proposed Income Shifting legislation but it does have other legal and tax consequences. 

If you own a Furnished Holiday Let (FHL) in the UK which generates losses, until now you have been able to offset those losses against your other income, thus reducing your annual tax bill.

Following announcements in the budget however, from 5th April 2010 this offset against your other income will no longer be available. 

Before its complete withdrawal, between 6th April 2009 and 5th April 2010 HM Revenue & Customs have extended the relief for one year only to cover losses generated on holiday homes outside the UK and within the EU.

Those with properties in these countries can submit claims backdated to the 5th April 2007 tax year, provided the claim is submitted prior to 31st July 2009 and provided the property complies with the Furnished Holiday Let (FHL) rules, i.e.

• It is available for commercial rent at least 140 days in a year
• It is actually let for at least 70 days in the year
• It is not occupied by the same customer for more than 31 consecutive days at a time.

As you are no doubt aware you should always be on your guard when receiving letters or emails supposedly from HM Revenue and Customs or from a bank, asking for your private details to allow for some transaction to be completed but instead it is a fraudulent scam.

One of our clients has sent us a copy of a letter recently received asking them to log on to a website and insert their information or otherwise receive a penalty. We have included this letter on our website for you to view so you can see the format this particular scam has taken.

HM Revenue and Customs are aware of a number of scams currently being operated.  Government agencies should however never ask for your details to be given over the internet or by email so if you ever receive anything asking for details in this way, always question it or ask for our advice first before responding.  

Whether you are currently use a sole trader, partnership, limited company or hybrid LLP business structure, there are inevitably a few fine tuning exercises that both you and your business can use to remain tax-fit.

Our latest morning seminar will explore some of the most popular and efficient ways to keep that dreaded tax bill at its legal minimum ranging from the simple but often overlooked ideas to the slightly more ambitious ideas that you may wish to implement in the coming months.

The seminar will take place on Thursday 4th June and will take place in our boardroom starting at 7.45 for 8am sharp with tea / coffee and bacon rolls provided with an aim to finish by 9am. Places are limited and can be booked by emailing Jenny@a4gsolutions.co.uk. To find out details of our other upcoming seminars please visit www.a4gsolutions.co.uk/weekly-seminars.

“Making the vision clear sparks people’s passion and productivity”.

JACK WELCH