Income Shifting: My Letter to Gerald Howarth, MP for Aldershot

by Mike on February 23, 2008

Earlier this month I blogged about “Small family-owned businesses to be penalised this April“. After reading Jaffa Brown’s recent blog post on the same subject I decided to check in with parliament.gov.uk and see if my local MP, Gerald Howarth, had signed up to support Early Day Motion 714 against the proposals…

The Early Day Motion 714 states:

INCOME SHIFTING

16.01.2008

Smith, Robert

That this House notes with concern the proposals for a new tax on income shifting; is aware of the disquiet expressed at the proposals by small businesses, the self-employed, freelancers, accountants and other affected parties; is concerned that the new tax will make it impossible for jointly-owned businesses to self-assess their tax liability with any certainty; observes that ever since the introduction of the independent taxation of spouses, it has been standard practice for married couples to own businesses jointly, that this was recommended by the Government for many years and that people who followed this advice now face being penalised; is concerned that the proposals are in direct conflict with the Government’s stated aim of encouraging enterprise and small businesses; observes that the new proposals will be inconsistent with divorce law and capital gains tax, so that spouses will be entitled to an equal share of the value of a business when they divorce, or of the proceeds from it when sold, but not of the profits while it is operational; and urges the Government to reconsider its proposals ahead of the Budget.

I ask you, who wouldn’t sign a motion against such a crazy proposal? As of writing, there are 128 signatures. Conservative 66, Labour 13, Liberal Democrats 45, Plaid Cymru 1, SNP 3.

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My own MP hasn’t signed, so I wrote him a letter to make him aware of the motion and requesting his support. If I hear back from him (or if I hear nothing), I will post his response on my blog:

Dear Mr Gerald Howarth MP,

I am writing to you to make you aware of the new “Income Shifting” stealth tax that is due to mean a significant yet unspecified tax increase on small businesses this year. The legislation targets jointly-owned businesses where profits are distributed equally between a husband and wife, other family members or close contacts that are not deemed to be “at arms length”.

Unfortunately this legalisation being rather rushed as it is, fails to define what “at arms length” actually means. Further, it fails to recognise family investment in small business and seeks to redefine family businesses as not valid businesses.

The Treasury are also seeking to determine that small businesses pay a “market salary” to its owners, without stipulating or providing guidance on what the “market salary” should be for each type of business. Further, I suspect, that paying “market salary” would put many of us out of business, since small businesses cannot sustain the same salary packages as the large corporations.

This uncertainty will lead to businesses being buried in red tape and paperwork with no way to self-determine our tax liabilities, leaving us open to unfair and aggressive tax investigations.

The Treasury has announced that the Budget, which is expected to contain information that the new tax will be introduced, has been scheduled for March 12th.

There is further information about the “income shifting” Family Business Tax at: www.familybusinesstax.co.uk

We and other small businesses in your constituency, need your signature to support Early Day Motion 714 against the proposals.

I will be posting up this letter to you and your response on my blog at:

http://www.mikewilson.cc/2008/02/06/small-family-owned-businesses-to-be-penalised-this-april/

I trust that we can count on your support for this motion?

Warm Regards,

Mike Wilson
Director – Evolved Software Studios Ltd
Director – Status Check Ltd

Are you affected by this Government’s naive and rushed taxation policy? Please consider contacting your Member of Parliament and asking them to support the Early Day Motion 714 against these proposals, you can view this motion and see those who have supported it, here:

http://edmi.parliament.uk/EDMi/EDMDetails.aspx?EDMID=34871&SESSION=891

edit: 4th March 2008: Gerald Howarth signs the Early Day Motion 714. His response to my letter above is now published at: http://www.mikewilson.cc/2008/03/05/income-shifting-a-response-from-gerald-howarth-mp/

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