Tax clarity for family firms pending

HM Revenue and Customs will this week unveil formal guidance for husband and wife companies, in a bid to conclude how they should self-assess their tax bill in time for the January 31 deadline.

The imminent publication will accompany the seminal decision whether the Revenue plans to appeal December's ruling by the Court of Appeal that found Arctic Systems did not owe thousands via retrospective taxation.

The PCG, which funded Arctic's two-year battle to prove director Geoff Jones was outside S660, has issued its own advice for affected companies facing the self-assessment deadline.

It states that tax returns should be completed as normal with text stating, "you are relying on your circumstances being substantially similar to the Jones V Garnett case and that reliance is being placed on the Court of Appeal ruling."

However, until HMRC decides whether it will fight or accept the Appeal Court ruling, which favours previously accepted tax planning, small family-run firms preparing their returns face "a degree of uncertainty," the PCG said.

If the Revenue appeals to the House of Lords, it will publish guidance for husband and wife firms advising them they may be liable for extra tax, particularly in circumstances where the company's income is generated by just one of them.

Conversely, if it accepts defeat, HMRC is expected to publish a guidance note advising affected companies – said to total at least 30,000, how they can claim a refund.

"If we are not going to appeal, the status quo becomes the norm. But if we are going to appeal, it would be prudent to set some money aside," a spokesman for HMRC told The Daily Telegraph.

Speaking to the newspaper, John Whiting of Price Waterhouse Coopers, said if the Appeal Court ruling stood, the "vast majority" of affected businesses would "not have anything to worry about."

Even so, he reportedly warned that the Revenue could clamp down on the tax arrangements of husband and wife companies with no asset base.

Last week, HMRC told Contractor UK it had launched three distinctive initiatives to raise the profile of the looming self-assessment deadline, which promises a £100 fixed penalty for latecomers.

About 400,000 newcomers to self-assessment have received direct mail warnings; 300,000 taxpayers have and will receive "courtesy calls reminding them to file", while "a re-designed reminder form" will reach a further 1.5 million.

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