CIOT warns 'tread with care'
The highly-respected Chartered Institute of Taxation has warned small family businesses that Section 660 - the so-called married couple's business tax - is a complex area and people need to tread with care.
It was at the request of the CIOT that the Revenue produced its recent Tax Bulletin with information and examples on Section 660 and, although the Revenue incorporated some comments made by the CIOT, the Revenue added the 'disclaimer' that the article remains an expression of the views and practice of the Inland Revenue and the CIOT does not necessarily agree with all the points made.
CIOT statement
The CIOT has now clarified its public position with a press statement under the headline "Hey Darling - We've Got A Huge Tax Demand - What Do We Do?"
The CIOT release said:
Tens of thousands of small enterprises - usually small businesses owned jointly by a husband and wife team - could be startled to receive demands from the Inland Revenue for significant extra amounts of tax.
The Revenue claim that these businesses have been avoiding tax, with typically the husband effectively passing on the profits of the business to his wife to reduce his taxable income and make use of her personal allowances and lower tax rates.
The Revenue is looking to use existing provisions known as the 'settlements legislation' or Section 660A to seek to look into business arrangements and reallocate income to the more active member of a family business. In some cases the amount demanded by the Revenue goes back up to six years and involves tens of thousands of pounds.
John Whiting, CIOT immediate Past President and a partner in PricewaterhouseCoopers, says:
"It's actually part of the 'settlements rules', which have been in place for many years, but to many taxpayers this is an interpretation of legislation they will not understand. These rules are anti-avoidance legislation and in many ways are fair enough - essentially they stop you passing income to someone else in the family, or giving income or assets to someone else on the basis that you'll have it back later, all in an effort to reduce the overall income tax bill.
"However, here we seem to have a new Revenue interpretation of the rules with an element of retrospection. They have not by any means got a cast iron case - there will be grounds to oppose the Revenue's claim. But it is a complex area and people need to tread with care. If you are faced with a demand, then the best thing to do is to get professional advice, preferably from a Chartered Tax Adviser."
CIOT
The CIOT was established in 1930 and is the leading professional body in the United Kingdom concerned solely with taxation, both direct and indirect. Its primary purpose is to promote education in and the study of the administration and practice of taxation. One of its key aims is to achieve a better, more efficient, tax system for all affected by it - taxpayers, advisers and the authorities. It has 12,000 members and is entirely apolitical.