Business News - February
Cold As Ice: The Arctic Backlash
Lincolnshire based accountants Moore Thompson are informing individuals that HM Revenue and Customs have published a draft consultation on income shifting. This follows the controversial case against husband and wife run company Arctic Systems Limited, in which HMRC lost appeals to allow them to impose a hefty backdated tax bill on the couple.
HMRC believed that the couple had unfairly gained a tax advantage by shifting the balance of income between them, by means of company dividends. The case was taken all the way to the House of Lords, where HMRC appeals were rejected.
To avoid a similar situation in the future, HMRC have published a draft consultation document incorporating proposed new legislation due to come into force in April 2008, regarding the shifting of income between company owners and partners in a partnership. HMRC have laid out criteria against which the ‘income shifting’ process can be identified.
- The first individual must have power over any arrangements made, including control over the amount of money that is shifted.
- The first individual must have forgone income that subsequently became the income of the second individual for the relevant tax year.
- The income must be distributions of a company or profits of a partnership.
- A tax advantage must have been gained.
Mark Hildred comments: “If all of the criteria are met, then the first individual is required to declare this on their self-assessment tax return as if it were their income. The process of ‘income shifting’ will be overridden, and income tax will be calculated on the first individual’s account as if it hadn’t taken place.”
For more information contact Moore Thompson on 01775 711333.
