Commons row on family business tax
The Small Firms Minister promised a 'robust response' to small business representatives on their concerns about Section 660 - the business tax on married couples and friends.
The comments came during an exchange in the House of Commons between newly-appointed Shadow Paymaster General, Mark Prisk MP, himself a former freelancer, and the DTI Minister, Nigel Griffiths.
Mark Prisk, Conservative MP for Hertford and Stortford, opened the 'batting' by asking Nigel Griffiths what representations the Secretary of State at DTI had received from small businesses about the effect of changes in the taxation of husband and wife enterprises.
Nigel Griffiths replied that there have been no changes in the taxation of husband and wife enterprises.
Mark Prisk MP: Shadow Paymaster General Mr Prisk told the House of Commons: "I think that the Minister is misinformed because the tax changes that small businesses have told me about mean that no one in a family firm now knows what their tax liability is, for this year or for the past six years.
"I refer, if the Minister is uncertain, to section 660A. This is creating uncertainty for hundreds of thousands of family firms. Will the Minister therefore agree to meet a delegation of small businesses to hear them express their concerns?"
Mr Griffiths replied: "The hon. Gentleman refers to section 660A, but he is being a bit economical in his description. It is section 660A of the 1988 measure to counter tax avoidance. The treatment of businesses under that has been consistent. I understand that the maximum that a husband and wife can attempt to avoid is about £8,000. However, at the moment the Inland Revenue is dealing with fewer than 100 inquiries on this subject.
"As I meet small business representatives regularly, if they raise the matter with me they can be sure of a robust response."
Section 660
The Inland Revenue's recent interpretation of an old piece of settlements legislation, Section 660, has been the subject of much controversy among the accountancy profession and much concern in the freelance community.
The Revenue claims that a married couple who own a small business are avoiding tax by distributing profits via dividends to both parties. They say that if one party is the business's fee-earner, the business's profits should be his or hers and that by using the dividend route to give his or her partner income is avoiding tax because the income from the dividends has been taxed at the basic rate of income tax rather than his higher rate.
Although Mr Griffiths claimed there is a comparatively small number of Revenue inquiries on the subject, the consequences for those who are targeted can be considerably more than the £8,000 he referred to.
One current case is that of Arctic Systems owned by Geoff and Diana Jones, who are facing a tax demand of £42,000 from the Revenue. Their case is due before the Special Commissioners in the New Year.
After the Parliamentary exchange, Mark Prisk told UKTECH: "The Small Firms Minister has failed to understand the problem Section 660 is causing. His silly remark that he will give anyone who complains "a robust response" begs the question who's he trying to help: small firms or the taxman?"