Clearing the fog: what does S660A guidance mean for contractors?

In common with many professionals, I have a deep unease about the way in which the Revenue appear to be using 'scare tactics' to try and frighten the public into paying more tax than they are legally liable to pay, and to deter the public from taking perfectly legitimate steps to minimize their tax liability.

Coming on the heels of the recent (September 2004) decision of the Special Commissioners in the case of Jones v Garnett (also referred to as the 'Arctic' case, on the basis of the facts of which the two Special Commissioners reached diametrically opposed conclusions in a 40 page long judgment), we now have the Revenue's new 'Guide to the Settlements Legislation for Small Business Advisors' (released 18th November 2004).

Sharing ownership of a family company, and using dividends as a means of spreading the withdrawn profits remains a legitimate way of easing the total family tax bill – but as time passes the Revenue are seeking to make doing this more and more of a minefield.

Some might say that this 'guide' represents another attempt by the Revenue to magnify these mines, without spelling out the safe ways through – or even telling you that there are such safe ways; that is something left for the reader to figure out for him/herself.

The Revenue's enthusiasm to apply existing legislation in an increasingly hard-line way seems to extend to a reinterpretation extending significantly further than the legislation itself in fact allows.

A 'Guide' should make understanding clearer; but here, one could understand a reader feeling left in confusion and fear, which will doubtless result in many not really having a clue what their situation or exposure is, and either paying tax in excess of what they are actually liable to pay, or failing to organize their affairs as they should/could.

What the public want to know is how to properly avoid liability under this legislation – and that, the Revenue don't tell you. The one thing that the 'Guide' does not do is make clear where the boundaries lie; instead, it simply further confuses the issues.

Contrary to the way in which the Revenue's new 'Guide' is being reported, husband and wife can still use shared ownership of a family company to reduce their tax bills – they just have to be a little more careful about the way in which they do so! The Revenue's current attitude means that it has now become crucially important for the realities of what generally happens (genuine joint control, joint effort, and equal ownership) to be properly reflected in the underlying structure – and to ensure that is done properly, most will now need to take proper advice from a professional who has some understanding of the legislation and the case law.

Article provided by Roger Sinclair at Egos Ltd

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