The business case against Section 660

There have been many arguments - some legal and some about fairness - relating to Section 660, the so-called married couple's business tax. Sylvia Constantine, a business adviser, argues the business case against Section 660.

Sylvia Constantine writes:

I have not been following the Arctic Systems case too closely but I have been very interested in the problem of Section 660 and the impact on family businesses.

I have been working with businesses for 28 years (as both a bank manager and a professional business adviser). Running a business requires three distinct skill sets.

• Technical skills – the ability to produce the product/service (e.g. plumbing or hairdressing)
  
• Business skills - the ability to manage the business (sales and marketing, financial management and tax, general administration, compliance with regulation etc)
  
• Personal skills – the drive, resilience, ambition and determination to take the business forward

It is the lack of a balanced combination of these skills that accounts for the high attrition rate of start-up businesses. The chances of finding all these skills in one person are very remote. Most business advisers (including publicly funded Business Links) encourage team starts and/or the involvement of family in the business because that usually ensures a good spread of skills.

The Inland Revenue has obviously come to the conclusion that only the technical skills generate income for the business and the other aspects provide no contribution to profits and therefore any family member providing these support services does not deserve an equal share of the profits. However, all the evidence is that businesses that have those support services stand a far greater chance of survival (never mind actually generating enough profit to pay tax!). Who are the Inland Revenue to judge the value of the contribution and therefore the share of the profits?

As a general rule people that have spent their lives in employment have very little concept, understanding or empathy for the self-employed. Their perception is that self-employment is an easy life and that the owners are raking in the money.

There is the argument that the business management skills can be bought in. However, there is a stronger argument that the technical skills can also be bought in. Why can't a plumbing or hairdressing business be run by the spouse?

When a new business gets started it is vital to have the support and backing of the family/spouse. Often the household will make all kinds of sacrifices to help the business to get off the ground. Why shouldn't the household benefit from profits generated as a result?

When/if a business develops to the next stage of growth it will often require another period of sacrifice and financial risk/investment. It is often at this stage that profits extracted in previous years are re-invested.

Section 660 contravenes the legal right laid down in the 1920s (I forget the case details) that we can conduct our affairs in a tax efficient manner. It also comes very close to state interference in the way that people manage their business. If Section 660 is widely enforced then many businesses will fail and we will all be "signing on".

Sylvia Constantine

Business Adviser

Stocksbridge Training and Enterprise Partnership (STEP)