Changes to taxes on family-run businesses
Mr Jones, an IT consultant, reduced his tax bill by reducing his salary and paying his wife in dividends. HMRC has previously never favoured these two perfectly legitimate methods of tax planning; however, the House of Lords ruling has brought clarity to the issue and saved Mr and Mrs Jones a tax bill of £50,000. Family-run firms across the UK are breathing a sigh of relief. Since the Artic Systems case began in 2003, tax advisers have been very cautious about recommendations relating to husband and wife companies. Unless both spouses contribute equally to the company in terms of activity, it is advisable that such companies be set up with, for example, only a 25% shareholding to the less active spouse. Family-run firms may have to ‘watch this space' in terms of the future of couple-specific tax cases. HMRC is not happy with the Lords' ruling and the Government has now announced plans to bring forward changes to tax laws to ensure ‘fairness'. It is not yet clear how the Government's plans will ensure fairness and how businesses will be affected. HMRC is not able to confirm when these new proposals will be put forward. One thing is for certain, though: tax bills, for everyone, will always continue to rise. About the author Pat Cobham is an ex-Inland Revenue Inspector and a senior partner in tax consultancy/accountants Cobham Day Ltd. Visit www.cobhamday.co.uk.