Family firms face 'tax crackdown'

[keys]

I came across this story on startups.co.uk

28/04/2005

Family businesses could now owe an extra £9,000 in tax after the High Court dismissed the appeal of a husband and wife caught in a government campaign against a previously accepted tax procedure.

Geoff and Diana Jones, who jointly run IT services firm Arctic Systems, were appealing a £42,000 bill in back taxes from the Inland Revenue issued under section 660A of the tax code, known as the 'married couples tax'.

The ruling reinforces the government's position to prevent family firms from trying to qualify for lower tax brackets by paying a depressed salary to the main earner and distributing profits in dividends equally between the spouses.

[microbe]

Bastards.

[Cougar]

Why B*****ds?

[microbe]

Well, for a start, I think the tax system is a rip off generally.

I resent having my money taken for illegal and immoral purposes e.g. the war in Iraq.

I resent that my money is spent on a health service which does not deliver the treatment I have paid for when I need it or my family need it.

I resent the disparity in the way in which large companies and the super rich are treated and the way that the middle earners are treated. (Take a look at News International's/Rupert Murdoch's marginal rate of tax and compare it with your own).

So the IR, I suppose, are just doing their job by screwing as much as possible out of the only people that are available to have extra screwed out of them.

[Cougar]

But do you know anything about Arctic Systems?

I am not a tax expert in this area but the main issue seems to be that this is a husband and wife business where the husband does most of the work or at least the work with higher value. What they tried to do what pay a lower salary to the husband and then make up the income with dividends. It seems to me that such an approach is not commercial and that to depress the husband's salary in the way they did was somewhat artificial in that they could only do it because they jointly owned the company. Of course it could not possibley work in any other circumstances. I am not saying they were wrong to try or that this kind of planning should not even be attempted just that I am not surprised at the outcome.

It is not the case that all husband and wife businesses will be affected in the same way. Much depends on the commercial arrangements in the business and this varies in every business.

On the other points raised, I can understand and agree with annoyance that tax taken to fund public services doesn't seem to bring about the improvements promised. That's why we have the chance to vote for who will think will do the best job in the way they spend our money on Thursday.

But it is not just about spending the tax collected; it is also about the best way to structure the collection of tax and the burden of tax, i.e. who pays it and on what and in what circumstances. We can all vote about this on Thursday as well!

[microbe]

No, I know nothing about Arctic Systems.

We are running our economy at a loss, with a multi-billion pound deficit while the manufacturing sector withers away and we have now started exporting service sector jobs too.

As far as I can see, we have fewer and fewer people every year who do anything which adds to the sum total of national wealth.

It seems to me that we have a tax regime in which large companies invest heavily, through lobbying, through use of tax consultants, accountants and so on to minimise or even eliminate their tax liabilities.

Small companies are not so well placed and end up bearing the burden. It is in these very companies where the kind of innovation and growth we need should be happening, but they are being crushed by increasing burdens of direct and indirect taxation and red tape.

As to voting, I have already voted.

[Joyous]

In my humble opinion the Arctic Systems case is yet another example of the tax authorities/govt moving the goalposts.

The fact that Mrs Jones was not actually bringing in any revenue doesn't mean that she wasn't doing her share behind the scenes. I doubt that Mr Jones would have done so well without the help and support of his wife so as far as I'm concerned she earned her dividend, not her husband.

The government is increasingly blurring the line between tax avoidance and tax evasion. One of the first things that we're taught in tax planning lectures is that avoidance is legal and evasion is illegal. The requirement that accountants now have to report tax avoidance schemes implies that such schemes are illegal. Where will it end? Are we going to get our wrists slapped for deciding whether or not to incorporate our businesses because of the tax benefits.

I'll stop ranting now...

Regards

Joy

[Cougar]

Originally Posted by Joyous

The government is increasingly blurring the line between tax avoidance and tax evasion. One of the first things that we're taught in tax planning lectures is that avoidance is legal and evasion is illegal. The requirement that accountants now have to report tax avoidance schemes implies that such schemes are illegal. Where will it end? Are we going to get our wrists slapped for deciding whether or not to incorporate our businesses because of the tax benefits. Joy

I wholly agree with you. The government does not talk in these terms of course; it uses the less technical phrase "paying your fair share" of tax - which is an empty and meaningless "assessment" of what tax the government thinks we should all pay. I agree with your analysis about blurring distinctions; you are quite correct.