Family firms pay tax penalty

Thousands of family firms could fall foul of a 'confusing' tax code that applies to working married couples.

The claim has been made by the Professional Contractors Group (PCG), an independent body representing freelancers in the UK, after a number of cases at the Inland Revenue’s Special Commission involving Section 660a were decided against the taxpaying businesses.

Section 660a, sometimes called the married couples’ business tax, deals with situations where income arises from something, such as shares, given by one person to another. This is known as a settlement. The purpose of the legislation is to stop people settling their income on another person who pays a lower rate of tax.

In a recent landmark case Geoff and Diana Jones of Artic Systems lost a £42,000 660a case despite the two Commissioners failing to agree between them. However, the presiding Commissioner had the casting vote.

Anne Redston, a tax partner at accountants Ernst & Young said, “Deciding a case of this nature by a casting vote is the equivalent of a penalty shoot-out. What are family businesses to make of a tax regime, which is apparently so unclear that even the expert Special Commissioners cannot agree? How are individuals supposed to complete their self-assessment tax returns?”

The PCG has called on the Inland Revenue to provide more clarity on Section 660a and it has been reported that it is currently under review.

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