The Association of Certified Chartered Accountants (ACCA) has warned that the Inland Revenue is actively seeking obscure, and at times questionable, 'taxable opportunities' in small company structures.
ACCA is particularly concerned that the application of section 660A of the Taxes Act will be extended, to the detriment of many more businesses.
Under the previously little known legislation contained in section 660A of the Taxes Act, many husband and wife companies have now found themselves subject to unexpected tax demands from the Inland Revenue. The type of companies affected are those where one spouse is more involved in the business and the other owns just a few shares in order to obtain dividends, often up to the value of his or her annual personal allowance.
Chas Roy-Chowdhury, Head of Taxation at ACCA, said: "The Revenue's current use of section 660A is just the tip of the iceberg. The Chancellor's determination to make tax collection more efficient, coupled with the need to sustain the Government's spend and save culture, indicates that the Revenue will try to apply it to many more small business set-ups.
"The Government's next move could be to introduce legislation which formally recognises these small company situations as an area of tax avoidance and targets them specifically. Such a development would dramatically affect most small companies and lead to expensive and bureaucratic restructuring. It would also leave many of them questioning whether they should have incorporated in the first place. Put simply, the legislation should not be contemplated at all. If it is introduced, however, it should not be retrospective legislation, as this would leave businesses with extra tax payments of potentially thousands of pounds, which many of them would be unable to make."
