Contractors working via their own limited company may be interested to know that HMRC recently lost their case against a couple who it claimed owed nearly £20,000 tax on four years’ dividends.
HM Revenue and Customs took the Patmores to court under s660a of the Income and Corporation Taxes Act 1988 but Barbara Mosedale, the tribunal judge, decided that when Mr Patmore paid dividends to his wife this was not an s660a settlement.
Although this may not affect the typical contractor, Kate Cottrell, co-founder of Bauer & Cottrell said, the ‘message’ from HMRC is that they are “still considering and trying to apply the Settlements legislation (s660A) despite their defeat in the Arctic Systems case.”
“We must not forget that it is still open to HMRC to simply change the law where the law does not adequately deal with perceived tax advantages.”
The judge noted that the accountant had set up the company structure in a tax efficient way but this was not a significant factor in the case.
Contractor UK reported that according to HMRC’s Counsel, those tax advantages were reaped by Mr Patmore between 1999 and 2003 and were valued at a total of almost £20,000, based on the five assessments they issued against him. HMRC said he owed this sum because it reflected dividend income from created shares, which although received by his wife and taxed at her lower rate, should have been taxable at his higher rate.
Kate Cottrell sums up by saying “With the recent creation of the new Office of Tax Simplification, Section 660 could now be back in the spotlight as part of the Small Business Tax Simplification Review. Contractors who have entered into such arrangements should remain vigilant.”
