17 November 2003
In an unprecedented show of unity, the heads of the UK’s leading tax, accountancy and business bodies have strongly criticised the Revenue’s position on Section 660A, characterising it as a secret husband and wife tax.
Issued Jointly By:
Chartered Institute of Taxation (CIOT)
The Tax Faculty of the Institute of Chartered Accountants in England & Wales (ICAEW)
Institute of Chartered Accountants of Scotland (ICAS)
Association of Chartered Certified Accountants (ACCA)
Association of Taxation Technicians (ATT)
Association of Accountig Technicians (AAT)
Federation of Small Businesses (FSB)
Society of Trust and Estate Practitioners (STEP)
The Non-Revenue Members of Working Together (WT)
In an unprecedented show of unity, the heads of the UK’s leading tax, accountancy and business bodies have strongly criticised the Revenue’s position on Section 660A, characterising it as a secret husband and wife tax.
This obscure but important legislation is commonly known as the “husband and wife tax” because of its effect on small businesses. If left unchallenged the Revenue’s controversial interpretation is likely to leave thousands of small business facing unexpected and hefty tax bills. Whilst the Revenue argues that only 30,000 companies are potentially at risk, the professional bodies believe the figure is much higher (bearing in mind the number of companies started in recent years) and that in any event even 30,000 is too high a number of businesses to be faced with uncertainty.
On 4th November the Revenue published their response to earlier criticism from the professional bodies; the comments of the professional bodies on that response are published today and attached to this press release.
“This is another stealth tax” said Mark Lee, Chairman of the ICAEW Tax Faculty. “The Revenue did not publish their interpretation of this legislation until 2001, and then only in a technical manual rarely read even by tax specialists. Nevertheless, they are applying their view for at least the last six years, which means many small businesses could face backdated and unexpected tax bills.”
This view was strongly endorsed by Tim Ambrose, President of the CIOT, who said “we believe that the Revenue have a legal and moral obligation to inform taxpayers of how the legislation is going to be applied. Their current approach is arguably a breach of human rights.”
The professional bodies have suggested a more pragmatic approach, which fits better with self-assessment. "We believe that taxpayers should normally self-assess on the basis that they are not within these rules, unless the opposite is clearly the case. The Revenue could challenge this self-assessment within the normal time limits, but the onus would be on them to prove their case" suggested Mr Ambrose.
“We are particularly worried that small businesses, which are the engine room of the economy, are being distracted by this unfair tax at a time when they should be concentrating on the market recovery” said John Walker, Policy Chairman of the FSB.
The other professional and business bodies endorsed these comments and called on the Revenue to reconsider their position.
Note for Editors
1. Example of why this issue matters
Here is a short example of the type of situations affected by the Revenue’s guidance:
Jack and Jill are a married couple who decide to form Hill Limited to exploit Jack’s skills in developing new pharmaceutical remedies. The couple own the shares in Hill Ltd equally; the net income of the company is £100,000, derived from Jack’s activities. Jill does some work for the company, such as taking phone calls, making bookings and generally supporting Jack.
Jack is paid a salary of £50,000 and Jill is unpaid despite her general advice and assistance; the net profit after tax of (say) £40,000 is then used to pay the two owners dividends of £20,000 each. Following Example 3 in the Revenue’s guidance, Jill’s £20,000 dividends are vulnerable to being recharacterised as Jack’s income and taxed at his higher rate of income tax. If Jack and Jill are tackled by the Revenue after six years of similar figures, an unexpected tax bill of some £30,000 could result, plus interest and possibly penalties.
2. Section 660A is the relevant section of the Income and Corporations Taxes Act 1988 which provides for the ‘husband and wife tax’.
3. The number of new companies formed over the last 3 years per year is:
2000/1 67,761
2001/2 175,161
2002/3 282,207
Participating Bodies Press Contacts:
Tax Faculty of the Institute of Chartered Accountants in England & Wales
Mark Lee – 020 7153 2495
Francesca Lagerberg – 020 7612 8858
Chartered Institute of Taxation
Anne Redston – 0207 951 2215
John Whiting – 020 7804 4422
Federation of Small Businesses
Simon Sweetman – 01394 274857
Institute of Chartered Accountants of Scotland
Derek Allen – 0131 347 0100.
Association of Chartered Certified Accountants
Chas Roy-Chowdhury 07710 707516
Association of Taxation Technicians
Trevor Johnson – 0151 632 0424
John Kimmer – 01903 821066
Association of Accounting Technicians
Brian Palmer – 01202 524600
Society of Trust and Estate Practitioners
Keith Johnston – 0207 763 7156
Representatives of Working Together are also involved in the process
Richard Shooter – 0116 233 6667
Richard Mannion – 0117 933 3116
