Business Link ‘falls foul of tax rules’

02 10 2004 United Kingdom

Advice on the Business Link website contradicts the advice given by the Inland Revenue, according to a report in the Financial Times today

In April 2003 the Inland Revenue issued a bulletin warning that it would use Section 660A of the Income and Corporation Taxes Act (S660A) in situations where a husband and wife own a company and one spouse is the main earner for the company. The effect would be that the main earner would pay income tax on the other spouse’s dividends

According to the FT, the website of Business Link was giving advice to couples who run small businesses that they could share the profits and reduce their tax bills. Anne Redstone, a tax partner at Ernst & Young, told the FT that this advice flew in the face of the Inland Revenue’s guidance.

“It’s strange for one branch of government to be suggesting that this as a good idea,” she said, “and the other to say this is tax avoidance and if you do it we will seek interest and penalties.”

A spokesperson for the Department of Trade and Industry said that the Inland Revenue had been involved in setting up the information for the Business Link website.

topenterprise comments

Some individual Business Link websites carried information about this ‘married couples tax’ after the Inland Revenue issued its warning in April 2003. Today’s report draws attention to situations where some sources of information from Business Links give contradictory advice.

Last week’s decision by the Inland Revenue Special Commissioners on this interpretation of tax law - Director of Sussex company ‘liable for tax on wife’s dividends’ - has met a storm of protest.

This test case was settled by the presiding commissioner using a casting vote in favour of the Inland Revenue. How are owners of small businesses expected to unravel the tax implications when even the special commissioners cannot agree?

Business Links are controlled by the Department of Trade and Industry, so it will be interesting to see if they support the decision in this test case or highlight reasons given by the accountancy profession why it should be overturned.

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