Contractors' Questions: Do we risk tax under S660?

Contractor's Question: I've been contracting since 2003 but my wife (and company co-director) has just recently won some contract work of her own. We've decided to put the contract through my existing limited company so both myself and my wife are now generating income. My expertise is in IT, my wife's is Pharmaceuticals. Her research is internet based so does not require any special assets other than knowledge of that industry. My assumption is that we are both earning now and the income can be pooled. We also have more than one customer. Do we need to make any special considerations for tax purposes? Are there any pitfalls with using one company for both types of work?

Expert's Answer: Here we have a situation where the husband and wife are each experts in two separate fields, namely IT and Pharmaceuticals. It follows that HMRC could seek to argue that more than one trade exists and therefore the wife's trade should be taxed separately.

There is a presumption that a company carries on only one trade. The activities carried on by a company are only likely to amount to more than one trade if:

(i) One activity is so different in nature from the other that it can be seen as quite separate; AND

(ii) The activities are separately organised and managed right up to Board level

If both husband and wife hold ordinary shareholdings in the company then they can rely on the judgment in the Arctic Systems case and the Settlements legislation should not be able to be applied.

If, however, shares other than ordinary shares are held, then the old legislation could pose a threat to you. Both spouses should therefore have their individual and joint arrangements reviewed to establish whether or not they are vulnerable to S660A.

The expert was Seb Maley, freelancer services manager at Qdos Consulting Ltd.

Thursday 30th Sep 2010