Newsletter Spring 2006

Spring 2006 Newsletter

Content

U-Turns Galore

Premises, Promises

Filing Bonus

RIP: 0% Rate

His and Hers

Party Spirit

State Of The Union

VAT's The Point?

Going Dutch

Away Win For Revenue

WIP-Round

The Best Land Plans

Tax Free Gizmos

Where Theres A Will

Do You Work Here?

Out Of The Shadows

Sacrifice Works

Home Sweet Office

Sauce For The Goose

Blissful Ignorance

PC Or Not PC?

Lost On Penalties

Worth The Paper

Carry The Can

His and Hers

There are significant tax advantages for husbands and wives who can split up their income, rather than one earning everything and the other wasting personal allowances and lower tax bands. If one partner has investments, it's easy to transfer them to the other - but the Revenue require "an outright gift of more than just a right to income" if the plan is to work for tax. If it doesn't work, the one who started with the income still gets taxed on it, even if the other one now receives it.

Three years ago, the Revenue published their view that this rule - "husband and wife settlements" - would apply to situations where a married couple owned a business together, and one of them received a share of the profits out of proportion to the contribution made. The typical situation would be a company owned 50:50, where one did most of the work without drawing a salary, so the profit could be paid out equally as a dividend.

Accountants protested that this wasn't caught by the rules, but the Revenue took a Mr and Mrs Jones to court over their company Arctic Systems Ltd, and the appeal Commissioner and the High Court judge agreed with the taxman. Just before Christmas, the Court of Appeal overturned these rulings, and gave husband and wife businesses some festive cheer. The appeal judges accepted that the settlement rules would not apply to a business carried on in common by husband and wife.

Now, the Revenue have announced that they want to take the case to the House of Lords. This is to "clarify the judgment" (or possibly to try to overturn it?). This continues the uncertainty for the Joneses and for others who had hoped that the Appeal Court's ruling would be the end of the matter - but at least the taxpayers are winning for the moment!

If you are a married couple running a business together, as a partnership or as a company, it's important to keep up to date with this case. We will be happy to discuss the possible implications with you.