May 2007

MARRIED COUPLES – LAW LORDS DECISION AWAITED

A key legal case will commence on June 5 at the House of Lords relating to HM Revenue & Customs' (HMRC) clamp down on married couples and tax avoidance by taking cash out of their business as dividends rather than income.

The case involves Mr and Mrs Jones and their company Artic Systems. The Joneses set up the company with equal shares and Mr Jones was solely responsible for the income it generated. Small salaries were paid to both Mr and Mrs Jones and the profits of the company were paid out as dividends.

This practice is widespread amongst small businesses and if HMRC win the case an estimated 30,000 couples will face crippling tax bills.

The Treasury has said that £250 million is at stake under existing arrangements whereas the Professional Contractors Group said that the figure was closer to £1 billion.