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The decision is first made available to the interested parties and then released to a wider audience, possibly in a week.
I'll keep updating this article with comments from the experts and interested parties.
Bauer & Cottrell
Kate Cottell of Bauer & Cottrell said: "It is difficult to comment upon the potential impact for small businesses at this stage without seeing the full judgement not least because the decision could be based upon factors that are personal to the case. Irrespective of what is in the detail we have no doubt that this will be a green light to the Revenue to challenge all small businesses under Section 660.
"We are already seeing Revenue Inspectors raising Section 660 enquiries alongside IR35. Like IR35 the arguments are complex and as always we recommend that professional advice is sought at the earliest opportunity."
Simon Sweetman
Independent specialist and Section 660 expert, Simon Sweetman, posted on Shout99: "It's not so much the result as losing the case on a 1-1 tie. If two Special commissioners can't agree, what hope is there for taxpayers seeking to self assess?"
Accountax
Dave Smith of Accountax who helped present the case to the Special Commissioners reacted to the news that the decision went in favour of the Revenue by saying This is arguably the most important tax case of the last 20 years.
Professional Contractors Group
The PCG who supported the case expressed surprise, concern and disappointment at the decision of what they described as a landmark case.
PCG chairman Simon Juden said: “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 deeply disappointed with this result, and concerned about the implications for other family businesses, consultancies and partnerships. This result is bound to make a lot of people think twice about spreading their wings and starting up on their own.”
"PCG is currently taking legal advice about possible next steps."
Qdos Consulting
Qdos Consulting said: "This is disappointing news for the small business world and freelancer community in particular.
"As Shout99 says, the Revenue will no doubt be buoyant as a result of this decision, however unfair it appears, and may well consider pursuing Section 660 challenges. "
Wilkins Kennedy
Roger Williams, partner at accountants Wilkins Kennedy, said: "This decision could be used to attack thousands of other small businesses structured in a similar manner.
"The companies that could be hit in any forthcoming clampdown will in many cases be those that incorporated to take advantage of the nil rate band that was effectively abolished in this year’s Budget. Taken together, these two measures could see the typical small family business paying thousands in extra tax.
"A lot of husband and wife companies have structured their tax affairs perfectly legitimately and are not abusing the dividend system. Our concern is that innocent family companies could become victims if there is a general clampdown.
"The Revenue’s concern is that too many small family businesses were making dividend arrangements with the sole purpose of saving tax."
According to Wilkins Kennedy, the "husband and wife" companies most at risk of being targeted by the Revenue will be those viewed as openly abusing the dividend system.
Companies at risk will be those where:
- Main fee earner is taking a notably low wage so that higher dividends can be paid out to other lower tax rate shareholders.
- Waivers are made on dividends to one shareholder in circumstances where other shareholders paying tax at the lower rate may benefit.
- Dividends on certain classes of shares to benefit shareholders paying tax at the lower rate.
- Purchase of shares by one spouse at nominal value, which is followed by a substantial dividend. For example, £1 worth of shares that gives immediate access to dividends worth £30,000.
- Shares issued to lower tax bracket relatives or friends that only have income rights but lack a claim on the company’s capital or voting rights.
According to Wilkins Kennedy the Revenue is most likely to investigate small family companies dependent on the personal services of one person and with a low asset base. In particular they are interested in where the main earner does not draw a market value salary and dividends are paid to shareholders paying tax at lower rates.
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Susie Hughes © Shout99.com 2004
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