Treasury to hammer family businesses

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.

Further reading:

HMRC warned against ‘knee-jerk’ Arctic
reaction

Arctic Systems: timeline and background on
the case