Accountants advise 'don't panic'

Accountants, BDO Stoy Hayward has advised husband and wife companies 'not to panic' after the Revenue's recent Section 660 victory - and has issued a list of circumstances where the so-called married couple's business tax is more likely to apply.

The small business community was thrown into confusion recently after the Inland Revenue won a 'landmark ruling' in the Arctic Systems case in the Special Commissioners. The Special Commissioners supported the Revenue's view that they should be allowed to collect tax from the joint income a husband and wife received from their company at a higher rate paid by one spouse, even when the other spouse had been receiving income that fell within their basic rate of income tax.

At risk

BDO Stoy Hayward has put together a list of circumstances under which the Revenue may investigate a family company:

• If one of the spouses in a husband and wife company is taking a salary which is substantially lower than would be expected for the job undertaken, this may alert the Revenue to investigate, particularly if the shortfall is paid out to the other spouse merely to make use of their personal allowances and basic rate band.
  
• If the spouse is receiving a salary or benefits for a job which greatly exceeds the market rate for the work carried out, this may also be cause for investigation.
  
• One sensible way of checking if your arrangements are likely to be considered avoidance is to ask yourself if you would enter into a similar arrangement if the individual were an independent third party rather than your spouse.

BDO Stoy Hayward believes that the majority of husband and wife companies are unlikely to be in danger because the best tax advice would be to ensure that payments made to spouses broadly reflect their level of responsibility and involvement in the business.

They said that the ruling will primarily affect people who significantly restrict their own income so as to transfer income to their non-working spouse.