Tax director John Whiting and his team have been looking at ways to prevent income splitting, which is used by husbands and wives to split the income produced by a family business, as he deems the tax saving made ‘unfair’.
John and his team at the Office of Tax Simplification (OTS) has stated that they will be looking into income splitting as well as other controversial taxes on businesses, such as National Insurance and IR35, which tackles self-employment. This, they believe, could raise £200m.
The OTS was established by Chancellor George Osborne in July, and in his first major interview since it was started Mr Whiting said: “We have to come up with some ways forward. I hope we can come up with some quick tweaks that can make a difference, but I am no under illusions that some of the things we could come up with will require some serious study.”
HM Revenue & Customs has been down this road before and repeatedly tried to prevent income splitting using legislation from 1936. The House of Lords rejected this approach in 2007 in a case involving a small IT firm called Arctic Systems.
The Revenue persisted, however, and in September successfully argued in court that a business had evaded tax because the couple drawing the dividends from their business paid the monies into a joint bank account.
So 2011 could lead to this and other ‘Tax Simplifications’ being introduced in an effort to raise money from the self-employed
The joint bank account gambit really seems incredibly petty, shows what lengths HMRC are willing to go to (presumably spending public money while doing it) to prosecute people.
It’s entirely reasonable, surely to expect a married couple to have a joint bank account, therefore they’re essentially being prosecuted for being married. In fact if they weren’t married, even with a joint bank account, would they have been stitched up successfully?
Would be interesting to know how much ‘unpaid’ tax had been recovered vs how much public money was spent prosecuting the case.
FOI request, anyone?
It sounds like the title Office of Tax Simplification is missed named.
If a partner is actually contributing to the business there is every reason why that partner should be fairly paid for the work done.
When there is no contribution then the couple are avoiding paying tax; and there are clear examples of this. This is unfair on the majority of tax payers, whether one likes that truth or not.
Without intruding into the lives of the owners of every privately owned company and looking into the operations of that company over an extended period of time how can HMR&C determine the correctness of that couple’s income statements. The easy way to simplify this is to preventing couple’s from working together; this will prevent small companies from starting up and put some companies out of business. Perhaps capping the amount that can be paid for administrative support, when it can be demonstrated that one of the couple does not generate income could work; but it must be demonstrated to be a fair cap. But when husband and wife are fee generators or involved in the day to day trading such a cap would be unfair, and how could that be demonstrated without ‘complicated’ tax policing.
The principle may be correct, but the reality is that there is no ’simple’ way of changing the current situation, while encouraging business growth.