PCG and Accountax have developed an online risk analysis tool called SARA (Self Assessment Risk Analysis) to help�freelancers and consultants�understand their exposure to Section 660A (S660A). This is in recognition not only of the growing level of concern by small business owners about dealing with the authorities, but also of the complexity of the S660A rules.

S660A, known as the �settlements legislation� dates from the 1930s, though its current incarnation is through the Income and Corporation Taxes Act 1988 and some changes in 1995. Its aim is to prevent re-characterisation of one person�s income as another person�s income for the purposes of avoiding tax. The Revenue has recently argued that dividend income received by a non fee-earning spouse or other connected person should be taxed as the main fee earner�s income, typically at the higher rate of 40%.

Members of the freelance small business community may be at risk from an Inland Revenue challenge on S660A if any (or all) of the following apply:

• There is a limited company (or partnership)
• Ownership is shared with someone else (e.g. spouse)
• The freelancer is the sole or main fee-earner
• The other owner receives dividends or profit share

Section 660A is arguably more important for freelancers than IR35 as it relates to the individual rather than the company and can therefore be applied independently of any company changes or closures.

There are two versions of SARA to account for the difference between the cases where shares were gifted from one partner to another, and those where both partners owned shares from the outset. Both versions contain a series of about 35 questions.

The questionnaire takes around 20 minutes to complete, and results are available immediately. SARA enables one to understand and take relevant action to identify whether one�s circumstances indicate that the Inland Revenue is likely to challenge and secondly, if the Revenue does challenge, one�s level of risk. SARA calculates and displays a risk factor, on a scale of 1 to 10, with explanatory text.

PCG has also published an updated Guide to S660A, available to members via its website.

Commenting upon the launch of SARA, PCG chairman Simon Griffiths said, �We believe that the Revenue is wrong both morally and in law to seek to apply the settlements legislation in this way, and that is why PCG is taking the S660A case of Geoff and Diana Jones to the Special Commissioners. This could apply to tens of thousands of other family businesses. In the meantime, our aim is to protect our members by offering them a simple way in which to assess their potential risk in terms of S660A.�