The government will introduce new legislation to stop the 'unfair' use of commercial tax rules, in the light of the taxman's loss in the courts against Geoff and Diana Jones of Arctic Systems.
The Treasury has stated that the conclusion of the husband and wife tax battle, which left Geoff and Diana Jones with a more favourable tax bill, has brought to light the need for the government to 'ensure that there is greater clarity' in the law on income-splitting.
Where couples enter into a business agreement that they would not normally do with someone else, to minimise their tax liability then it results in an 'unfair outcome' that increases the tax burden on other taxpayers, the Treasury said.
'The government will therefore bring forward proposals for changes to legislation to ensure this is the case. In the meantime, HMRC will apply the law as elucidated by the House of Lords and will be providing guidance in due course.
'It is the government’s view that individuals involved in these arrangements should pay tax on what is, in substance, their own income and that the legislation should clearly provide for this.'
The CIoT's Anne Redston warned that it would be very difficult to distinguish between ordinary family businesses and those set up that the government believes abuse the system, reported the Daily Telegraph .
Advisers yesterday warned the taxman against a 'knee-jerk' reaction to its loss in the House of Lords.
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