A ruling in a tax case involving a husband/wife business will not hit the hundreds of thousands of similar firms says accountant BDO Stoy Hayward.
Its view comes from a reading of the case, ruled on yesterday by the High Court, which it says is based on “extreme” facts.
Instead of viewing the High Court’s ruling as a victory for the Inland Revenue, it is more a matter of the department having sought to apply existing rules in a consistent basis following a decision by tax commissioners last year, the accountant says.
That decision held joint income from a company should be taxable at the higher rate of the two spouses, even when the other spouse receives income falling within their basic rate of income tax.
Stephen Herring, tax partner at BDO Stoy Hayward, says the this makes the Revenue’s actions in this case “understandable”.
”We believe that it was not so much the sharing of tax liabilities that prompted the investigation, but the fact that [the husband concerned] severely limited his income by accepting a greatly reduced salary compared to typical industry remuneration to enable increased dividends to be shared with his spouse,” Herring says.
A spokesman for BDO Stoy Hayward adds the gist of the win should be that the Revenue is not actively going to proceed against all such businesses, but that it will take action where it spots data outside the norm.
It may also be the case that this case has actually produced the better outcome for such businesses overall as the alternative could have been tighter new rules introduced by the department had it lost the case, the spokesman says.
A list of situations that might trigger Revenue action, according to BDO Stoy Hayward includes:
The accountant recommends a litmus test consisting of asking whether the company would implement a similar arrangement if the individual concerned were a third party rather than a spouse.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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