We all know HMRC are dedicated to collecting unpaid taxes and legally challenging anyone who misinterprets the law. This has been proven once again in a s660A case. This may seem of little relevance to many contractors since it relates to ‘husband and wife’ businesses but, if nothing else, it shows there is nowhere to hide from HMRC when they believe you owe money.

Speaking about the case of Patmore v The Commissioners for HM Revenue & Customs, co-founder of Bauer & Cottrell, Kate Cottrell, stated that HMRC are “still considering and trying to apply the Settlements legislation (s660A) despite their defeat in the Arctic Systems case.”

She continued: We must not forget that it is still open to HMRC to simply change the law where the law does not adequately deal with perceived tax advantages.”

HMRC valued Mr Patmore’s tax advantages at £20,000, which they believe, occurred as dividends were taxed at Mrs Patmore’s lower rate instead of his higher rate.

Speaking to Contractor UK Paul Spindler from Kingston Smith LLP commented: “The tribunal concluded there had actually been a gift of income,” the chartered accountant said. [Even then] the actual amount of the gift of income was much lower than HMRC had contended because Mrs Patmore was jointly liable for a loan, which had been secured on the family home and used to buy ordinary shares. Mrs Patmore had not received 50% of these shares, as most were acquired by Mr Patmore, so the tribunal considered this a constructive trust in favour of Mrs Patmore.”

He continued: “The tribunal did criticise HMRC, though it is clear that individuals who would like to split their income and take advantage of the exemptions [to s660A] must ensure that they have taken professional advice before creating new shares or altering the rights of existing shares.”

Ms Cottrell concluded: “With the recent creation of the new Office of Tax Simplification, Section 660 could now be back in the spotlight as part of the Small Business Tax Simplification Review. Contractors who have entered into such arrangements should remain vigilant.”

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