Money News
The House of Lords has ruled in favour of a husband and wife business partnership - and against HM Revenue & Customs (HMRC) - in what amounts to a landmark tax case.
At issue was HMRC's contention that the couple, Geoff and Diana Jones, avoided tax by paying Diana dividends through the couple's firm. They had been in line for a tax bill of around £50,000.
What makes this case a landmark one is that had the Lords ruled in favour of HMRC it would have had the opportunity to retrospectively collect tax it felt due, from family firms.
The action against the Jones's IT consultancy firm, Arctic Systems, began back in 2003 after HMRC decided to re-interpret the well-established law on how joint and family-owned businesses should be taxed.
HMRC decided that where a low-earning or non-earning spouse - and who is a co-owner of the business - receives dividends from the company, that money should be taxed at their partner's income tax rate.
The tax authorities further argued that Mr. Jones had reduced his own salary to an artificially low level, so that he could effectively give his wife a bigger slice of his own earnings, but paid as dividends.
As a result of the Jones's victory the Government says it will now bring forward plans for changes to tax laws to ensure "fairness" and "greater clarity to the law". Whatever that means.
26 July 2007 © Moneyextra.com
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