Editors note (Feb 2012):
Section 660 was replaced by the settlements legislation in 2005, as Section 624 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005. For more info see settlements legislation.
On 18th June 2003 IR35Calc attended the Section 660 seminar presented by
Shout99. The seminar provided excellent information and analysis of the current
situation, together with advice and guidance on specific actions individuals
take to mitigate their risk against section 660. The speakers were Simon
Sweetman, a tax consultant; Carl Whittaker, a tax consultant, and Kevin Miller,
an accountant from Shout99.
What is Section 660?
Section 660 is aimed at companies where there is one revenue earner, with a
spouse or family friend as an employee, and/or a shareholder.
How has is arisen?
The legislation has existed since 1990 and was re written in 1995. It is not
something new. However, over the last 10 years the number of Personal Service
Companies has increased as a result of the advantages tax position and also as
a result of the demand by agencies to only deal with limited companies.
Is it related to IR35?
Many companies have managed to protect themselves against IR35 by having
IR35-Friendly contracts. HMRC then looked at the working
practices, which in some cases, has further been mitigated by companies by both
parties signing a set of working practices. It was expressed that although
there is no direct link to IR35, it was thought that HMRC might
be attempting to use Section 660 in cases where the company had protected
itself against IR35. Carl stated that he in his view they were ‘Using it as an
add-on tool the IR35 argument.’
Should I panic?
Not yet. Section 660 is not a crusade by HMRC (yet!). The
legislation is only currently being applied in this manner by a few offices.
Bristol and Manchester were mentioned. However, that is not to say that it will
not spread. Kevin Miller stated that is was ‘Safe to assume that it would
How widespread is it?
Simon stated that there “were currently only 50 known cases.”
Will it effect me?
It depends. If you are running a family business where each shareholder is an
active part of the business then there is nothing to worry about. The targets
tend to be cases where there is one revenue earner, and a spouse, or family
member who does not have a significantly active role in the business but
receives a large dividend. The relatively non active shareholder would also
need to hold shares that does not give them any financial risk, right to vote
or right to capital of the company. Ordinary shares, which the majority of
single man PSC’s have, do ensure the shareholders have all those rights.
What should you do now?
Firstly, don’t panic, but do assess your situation. Shout 99 has some excellent
material that can help you do this. There are some steps you can take now to
mitigate your risk which are discussed in the material. Monitor the situation
going forward and ensure that if the revenue targets you on a section 660 basis
you engage the use of professionals to defend your case.
How much could it cost me?
This depends on individual cases, but estimates are that it could be up to
£42,000 if the revenue attempt to go back 6 years. However, Carl expressed that
because companies has fully declared their situation each year there was a
string argument against the revenue having the right to go back 6 years to
apply this legislation.
What will happen next?
It is unsure. The next 6 months will make things clearer once a few test cases
have gone through. Watch this space.