SETBACK
FOR FAMILY BUSINESSES AS ARCTIC SYSTEMS LOSES S660A
CASE
PCG has learnt today that Geoff and Diana Jones of
Arctic Systems have lost their landmark Section 660A
case, which was heard by the Special Commissioners of
Income Tax in June this year and supported by PCG. The
decision was not unanimous; the view of the senior Commissioner
prevailed by way of a casting vote.
Expressing surprise at the judgment, PCG chairman Dr
Simon Juden said, “This result adds to the uncertainty
and confusion surrounding the taxation of family businesses.
If two highly expert Commissioners of Tax cannot agree
on a case such as this, it is hard to see how a small
business is properly to assess its own tax bill. We
are naturally deeply disappointed at the outcome of
this important case and concerned about the implications
for other family businesses, consultancies and partnerships.
We believe the current application of Section 660A to
be incompatible with the concept of self-assessment,
and the principle of independent taxation of spouses.
This result is bound to make a lot of people think twice
about spreading their wings and starting a family business.”
Section 660A, known as the “settlements legislation”,
has been around since the 1930s. It is wide-ranging,
and deals with situations where income arises from something,
such as shares, given by one person to another. This
is called a “settlement”, and the aim of
the legislation is to stop people settling their income
on another person who pays tax at a lower rate.
“PCG is determined to achieve clarity in this
matter,” Dr Juden continued, “and we are
urgently seeking expert legal advice and examining possible
next steps. We remain committed to supporting family
businesses and passionate about the right to transparent
and easy taxation at a fair rate for people who choose
to work for themselves. We believe that where families
share risk they should also be able to share reward.”
Geoff Jones said, “We are of course very upset
about losing this case, but Diana and I would like to
thank PCG, not just for its financial support, but also
for all the moral support from its members and directors.
Being a PCG member means not having to face the authorities
alone. I’m sure that many people just give up
when faced with an Inland Revenue demand, however unfair
or incorrect it may be.”
The dissenting Commissioner, Ms Judith Powell, found
in favour of the Joneses; however Dr Nuala Brice, who
was presiding, found for the Revenue and as chair had
the casting vote. The case was presented on the Jones’
behalf by Malcolm Gammie QC, an eminent tax expert,
assisted by Dave Smith of Accountax Consulting, who
is a Fellow of the Chartered Institute of Taxation.
Mr Smith said, ”This is arguably the most important
tax case of the last 20 years. Accountax and PCG have
a strong track record of defending small businesses
together, and we will examine the judgment closely before
coming to a view on the best way forward.”
SARA - THE ONLINE S660A RISK ASSESSMENT TOOL
Members who are concerned about S660A can find out
their likely risk using SARA,
an online "Self Assessment Risk Analysis"
tool developed by PCG and Accountax Consulting.
You may be at risk from an Inland Revenue challenge
on Section 660A, the "settlements legislation"
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
SARA is available to PCG members only at a special price
of just £25 (normal RRP £199), and can be
purchased online
Section 660A can arguably have more impact on freelancers
than IR35 as it resides with the individual, rather
than the company, and therefore follows you for life.
SARA was first developed some years ago by Accountax
as a telephone questionnaire for clients to determine
their likely exposure to a S660A challenge by the Inland
Revenue. Since then, it has been developed and refined
during extensive use with clients. In light of an increased
number of enquiries and interest around S660A from members,
PCG approached Accountax to collaborate on a project
to bring SARA online and be available to a far greater
number of freelancer small businesses.
There are two versions of SARA to account for the difference
between the cases where shares were gifted from one
partner to another, and the case 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
you to understand and take relevant action:
* To identify whether your circumstances indicate that
the Inland Revenue is likely to challenge and secondly,
* If the Inland Revenue does challenge, your level of
risk.
After completing the questionnaire your own risk factor
is published on a scale of
1-10, with explanatory text.
See also the latest version of PCG's
Guide to S660A available to members as a download
from the website.
Disclaimer - caveat emptor - PCG carries very limited
advertising only from known and reputable Affiliates
and complementary organisations. Even so, publication
of any advertisement carries no implicit or explicit
endorsement by PCG.
Professional Contractors Group Limited
Lakeside House, 1 Furzeground Way
Stockley Park East
Uxbridge
UB11 1BD
Telephone: +44 (0845) 125 9899
Fax: +44 (020) 8622 3200
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