Joint Press Release: Guidance Note in the Settlements Legislation

GUIDANCE NOTE ON THE SETTLEMENTS LEGISLATION – HOW DO YOU SELF ASSESS? The six main tax representative bodies (all listed below) have issued an updated guidance note to help tax advisers and their clients with their tax returns for the year ended 5 April 2005. This is to assist with self assessment in light of the decision in the Arctic Systems Limited case (Jones v Garnett) which is still under appeal.

Francesca Lagerberg, Chairman of the Tax Faculty of the ICAEW notes:
“Many small businesses, particularly those involving just a husband and wife, may still be unsure how to complete accurately their tax returns in relation to the settlements legislation. The recent High Court case involving Arctic Systems Limited has left many questions unanswered but the appeal may not have been heard in time for people to self assess for the year ended 5 April 2005, where the filing deadline is by 31 January 2006. The guidance note issued today by all the main tax representative bodies is intended to help with this dilemma.”

Click here for a copy of the updated guidance note.

-ENDS-

Notes to Editors
1. The key tax representative bodies issuing the guidance are as follows:

• The Tax Faculty of the Institute of Chartered Accountants in England & Wales (ICAEW) – Contact: Francesca Lagerberg on 0207 131 4252 or email Francesca.Lagerberg@smith.williamson.co.uk.

  · The Chartered Institute of Taxation (CIOT) – Contact: John Whiting on 020 7804 4422 or e-mail john.whiting@uk.pwc.com .

  · Association of Chartered Certified Accountants (ACCA) – Contact: Chas Roy-Chowdhury on 0207 059 5976 or email chas.roy-chowdhury@accaglobal.com.

  · Institute of Chartered Accountants of Scotland (ICAS) – Contact: Derek Allen on 0131 347 0292 or email dallen@icas.org.uk

  · Association of Taxation Technicians (ATT) – Contact: Andrew Hubbard on 0115 918 4575 or email andrew.hubbard@tenongroup.com.

  · Association of Accounting Technicians (AAT) – Contact: Brian Palmer on 01202 524600 or email Brian@palmerco.co.uk.

  2. The case of Jones v Garnett [2005] STC 903 was heard in the High Court in April 2005. It is on appeal and is not expected to be heard until at least January 2006. The case was concerned with the operation of the settlements legislation (formerly s660A, ICTA 1988 and since the latest Tax Law Rewrite Act it is now in Chapter 5 of Part 5 to the Income Tax (Trading and Other Income) Act 2005). In the case, Mr and Mrs Jones ran a small IT company where Mr Jones was the sole director. He was a higher rate taxpayer. She paid tax at a lower rate. They owned one share each in the company. They both took out a small salary and extracted the majority of funds by way of a dividend, which was of course split equally between them. Her Majesty’s Revenue & Customs (HMRC) successfully argued in the High Court that the dividends going to Mrs Jones could be reallocated under the settlements legislation to Mr Jones and extra tax sought upon them.

  3. The operation of the settlements legislation has been a controversial issue with the tax representative bodies disagreeing with some aspects of HMRC’s interpretation of the rules. The attached guidance note sets out the issues relating to disclosure which all tax advisers and affected clients should consider where there is a chance that the settlements legislation applies.

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  Simon Goldie