His and Hers Tax Bill after Court's Ruling

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Byline: Martin Faint Enterprise Editor

A stinging retrospective tax blow could hit husband and wife teams at the head of small businesses after the Inland Revenue won a controversial ruling last week.

The tax system's Special Commissioners ruled in favour of the Revenue on a test case involving an information technology company called Arctic Systems - leaving husband and wife businesses facing the chilly prospect that they could be hit by a substantial extra tax bill. The company was owned equally by Geoff Jones and his wife, Diana. Mr Jones challenged the Inland Revenue over its demand for additional tax on dividends paid out by the company to his wife following a change in interpretation by the Revenue of trust legislation in Section 660A - also known as the 'couples tax'.

Birmingham's accountancy and legal professions warned the decision could set a precedent for the Revenue to be allowed to collect retrospective tax from hundreds of thousands of small businesses.

Howard Belton, a tax director of Baker Tilly, on Temple Row, said by treating the dividend as being received solely by the husband, they are denying the wife the opportunity to use her personal tax allowance and lower rates of tax.

Like many others in the profession, Mr Belton said the Revenue had taken a heavy-handed stance in its interpretation of new anti-avoidance legislation.

'The Revenue's current tax avoidance crackdown and the use of settlements legislation could really bite into the income of smaller businesses in this area,' he warned. 'The claims for tax dating back over six years could in some cases amount to tens of thousands of pounds.'

Business pressure group, the Forum of Private Business, delivered what it called a 'stinging rebuke' to the Revenue for running a 'deeply damaging' and 'aggressive' campaign against family-run companies. Chief executive Nick Goulding said he was scornful of the Revenue for basing its case on obscure 1930s law.

'Public officials, with their index linked pensions, should be aware that in family businesses the family shares the risk and it is not unreasonable that the tax burden should be spread with the family balancing risk and reward,' he said.

He warned the ruling could directly hit the ability of these businesses to create jobs and wealth and added the Revenue's approach was damaging the economy. …