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| CURRENT SECTION :: Section 660 / S660 |
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We recently reported concerns about the Inland Revenue's interpretation of Section 660 - an existing piece of tax legislation which helps determine the principal beneficiary of a business - in other words, the shareholder who receives dividends from company profits at then end of the year. The PCG wrote to Dawn Primarolo last week - here is a copy of the letter: Dear Paymaster General, I am writing to express our deep concern about the application by the Inland Revenue of the Settlements legislation to shareholdings in small family businesses. In a number of recent cases the Revenue has sought to recharacterise a wife's dividend income from a small limited company as that of her husband, under Section 660A ICTA 1988. We are advised the Revenue believes it is justified in its approach. We disagree. We believe this approach is legally flawed, unprecedented, and will widely be seen as an unfair new tax on a very large number of small businesses in all sectors of the economy. Following discussions with the Federation of Small Businesses involving Stephen Alambritis, we understand the FSB is equally concerned about this issue and that they will also be looking at the adverse effects of this application of S660. Our concerns are principally: 1) Any small business with a husband/wife or other family shareholding is likely to be affected. The numbers affected are very large, because this is the most common method of structuring a family company. 2) Application of S660 to a situation in which shares are initially subscribed by several family members (rather than transferred at a later date) is legally unprecedented, and there must be significant doubt whether the courts would support it. Were it so supported the implications would be wide ranging. 3) The policy will be seen as an attack on a woman's right to own assets and receive income independently from her husband, and as a retreat from independent taxation. 4) The taxpaying public and their advisers are wholly unaware that the IR considers that dividends paid on shares in family companies should be recharacterised, in whole or in part, as the income of the main worker within that company. There is no easily available guidance on this (no tax bulletins, no press releases) and no tax cases which deal with the areas currently under attack. 5) In the light of this, the decision to back-date the new approach over several years will be seen as particularly unfair. 6) The policy does not sit very comfortably with the freedom married couples have to transfer assets for CGT and IHT without problem (the different approach here means that taxpayers will be even more startled by the position taken on income tax). 7) It is also surprising that this initiative has been taken at a time when the government is generally encouraging small businesses to incorporate; many will have done so using this 50:50 shareholding structure. 8) Small businesses believed the issue of husband/wife shareholdings was resolved by the IR35 legislation. The new approach to S660 would catch situations where the IR35 test has been passed, as well as affecting companies which could never have been at question under IR35. If the Revenue pursue this policy it is likely to meet significant criticism. Individuals running small family businesses, who believe they are compliant with the tax system, will find they are unexpectedly branded as tax avoiders and have large, possibly unpayable bills. We await your earliest and urgent response. Yours sincerely, Gareth Williams Director of External Affairs Professional Contractors Group Previous Page
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