Section 660 win for Qdos
As the Arctic Systems case continues to attract the attention of Section 660 watchers, Qdos Consulting can report a victory in another Section 660 case.
Keith Preece of Qdos writes:
Qdos Consulting has won another Section 660A dispute with HM Revenue & Customs (HMRC). This is despite the uncertainty surrounding the Settlements Legislation - the so-called married couple's business tax - while the Revenue are in the process of petitioning the House of Lords for leave to appeal against the Court of Appeal judgement in the Arctic Systems case (Jones v Garnett).
Qdos were successful in convincing the Revenue that even in cases where the Revenue firmly believes that there has been some sort of settlement between husband and wife, the arrangement is not necessarily bounteous.
In this case, the wife purchased her shares from a third party, rather than from her husband, but the Revenue contended that the payment of substantial dividends to the wife, which secured a tax advantage for the couple, represented a settlement, as defined by Section 660A.
However, Qdos took the view that as the wife contributed substantially to the business, in terms of physical work on a day-to-day basis, even if the arrangement did constitute a settlement, the wife deserved her financial rewards, and so the payment of dividends was not bounteous.
At one stage, the Revenue offered a compromise, suggesting that in view of the wife's contribution to the business, only half of her dividend income should be assessable on the husband. However, Qdos stuck to its guns, pointing out that not only did the wife contribute to the business in terms of physical effort, her name was on the joint mortgage that had been used to finance the business and was secured on the marital home, demonstrating substantive financial risk on her part. The Revenue finally agreed with the Qdos interpretation and dropped the enquiry.
This confirms that even if the Lords were to overturn the Court of Appeal decision, HM Revenue & Customs have to consider each case on its merits, and acknowledge that just because a husband might have "settled" money on his wife, it does not necessarily mean that the arrangement is caught by the Settlements Legislation.