Section 660 guidance as tough as feared

Unofficial word has come back to UKTECH that the Revenue's new approach to Section 660 - the married couple's business tax - might be as bad as was feared.

Section 660 is potentially a bolt from the blue for tens of thousands of freelancers' businesses which are organised in a way in which a husband and wife share in the risks and the rewards of a business.

In summary, the Revenue is addressing a scenario where one party does the majority fee-earning work, while the other party assists in the running of the business. If the main fee-earning partner then pays himself or herself a ‘lower’ salary and shares some of the profits via dividends to both parties – then according to the Revenue, this can be seen as ‘diverting income to a family member in a lower tax bracket’. It sounds improbable and unlikely, – but that is exactly what happened to one small company, which is now facing a tax bill of £42,000.

UKTECH has heard unofficially that the guidance that the Revenue say they are going to issue in their April tax bulletin contains examples of situations, where Section 660 will be applied. This indicates that their approach is going to be every bit as tough as was feared might be the case.

Accountants are still debating whether this use of Section 660 is such a change or not.

Some have stated that they were always aware that Section 660 could be applied in this way; others remain adamant that Section 660 should not be applied to husbands and wives who hold ordinary shares that involve rights that are wider than just a right to income.

We will have to await the guidance before the full picture is clear.

More information about Section 660 is available here:

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