The Government website Business Link is advising small businesses that they can use regular share dividends to ‘top up’ the remuneration of family members.
This conflicts with the recent ruling by the Inland Revenue Special Commissioners in the Arctic Systems case.
As a result of this recent ruling by the Revenue, tens of thousands of small businesses could face huge tax bills because they have arranged their businesses in this manner.
A leading accountancy firm comments that “it's strange for one branch of government [Business Link] to be suggesting this as a good idea, and the other [the Revenue] to say this is tax avoidance and if you do it we will seek interest and penalties."
The Business Links site is described by the Department of Trade and Industry as ’the Government site for practical business advice and help.’
It advises small businesses that:
If desired, family-members' remuneration can be topped up by other means - through regular share dividends, for example.
A statement issued from the DTI offers no alibi for the IR, which was on board for Business Link from the start, despite its opposing message.
"This is surprising because the Revenue contributed to the content when we launched the website," it says.
The Revenue has denied any clash between its rules and guidance stated on Business Link, which continues to recommend a list of 'good ideas' to family businesses.
Meanwhile, the accountancy profession is preparing to fight back against the 660A ruling in favour of the Inland Revenue that could force at least 200,000 family businesses to pay an extra £1billion in tax.
The profession, which has formed a pressure group known as the 660A Group - after the legislation governing this area of taxation - will meet the deputy chairman of the Inland Revenue, David Hartnett, on Thursday to complain about the way the Revenue treats family businesses.
The 660A Group is made up of representatives from professional bodies including the Association of Chartered Certified Accountants (ACCA), the Chartered Institute of Taxation (CIOT), and the Institute of Chartered Accountants of England and Wales (ICAEW).
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.