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New revenue guidance on section 660

The Inland Revenue has published a new guidance booklet on Section 660 - the so-called married couple's business tax.

The 49-page document, 'A Guide to the Settlements Legislation for Small Business Advisers', published today (November 18) brings together in one place all of the existing, and some new, Inland Revenue guidance on the application of the settlements legislation to small businesses. The guidance is intended for use primarily by tax practitioners and accountants.

It contains some background and general principles on the settlements legislation, followed by some specific details on how the legislation applies to business situations. There is also guidance on completing the SA return, especially where the taxpayer/adviser does not agree the Inland Revenue’s view of how the settlements legislation applies.

The booklet begins by explaining the Revenue's approach to Section 660.

It says: "The settlements legislation is anti-avoidance legislation intended to prevent an individual from gaining a tax advantage by making arrangements which divert his or her income to another person who is liable at a lower rate of tax or is not liable to income tax. Most commonly the legislation will apply where an individual seeks to divert income to members of their family or to friends. A good test of whether or not the legislation applies in a business situation is to consider whether the same payments would be made to a person who acquired shares in a company or a share of a partnership at arms length. Or whether income is being paid simply because the recipient is a spouse or child or some other individual the business person might wish to benefit."

Editors note (Feb 2012):
The original settlements legislation dates back to the 1930s and was subsequently updated first in 1988, when it became the more familiar Section 660. It was changed again in 2005 when it was updated and rewritten into its current form as Section 624 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005. See more information on the current settlements legislation.

Published: Thursday, November 18, 2004

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