Arctic Systems
Discussion
JonRB said:
Nope. But as I said earlier, it will be all over PCG, Shout99, ContractorUK, and all the other sites the moment the ruling is handed down.
None of which are sites I frequent, and life is too short for the accounting specific sites mentioned by Eric (no offence intended, I'm sure they can be very interesting....). If it isn't on PH, grandprix.com or the BBC news I'm afraid it will pass me straight by.Edited by JonRB on Monday 16th July 09:45
I have a meeting with my accountant tomorrow to discuss, amongst other things, the implications of transferring some ltd co shares to my wife and would have liked to be forewarned if the verdict had been handed down.
I'm not a contractor and my company is not that small (8 employees), so maybe the ruling wouldn't be that relevant anyway?
David_s said:
I'm not a contractor and my company is not that small (8 employees), so maybe the ruling wouldn't be that relevant anyway?
It would only probably affect you if you run a limited company where you and your spouse are shareholders but the spouse makes no real contribution to the running or profitability of the company yet benefits financially where otherwise the joint income would come through you. In such circumstances the Inland Revenue would seek to put it all through your tax code regardless of the shareholding split between your spouse and yourself.If that doesn't sound like you then, no, I doubt the ruling would be that relevant to you.
But, regardless, if you consider the number of contractors and accountants on PH you can be sure that we'll be discussing it when the ruling is handed down.
Edit: Which is pretty much what Eric posted at the same time as me, but he was more succinct.
Edited by JonRB on Monday 16th July 17:14
Had a session with my accountant this morning (his last words to me were 'you are more prepared to live in the twilight zone than most of our clients...), and in his opinion the Arctic Systems case is of sufficient importance that if HMRC lose at the House of Lords then there will probably be a change of the relevant law(s) so that they win in the long term. His recommendation was that a prudent (25%) transfer of shares (and associated dividends) to a spouse should remain acceptable, but that larger transfers may well not achieve the desired objective regardless of the AS outcome. I will watch this space with interest.
It will be interesting to see how this all pans out. If the Revenue lose the case and therefore change the law - I would contend that the changed law could still be challenged - even if it needs a trip to the European Court of Human Rights.
The Revenue are trying to distinguish between small owner managed companies and "normal" trading companies. They are trying to establish a precedent in that they seem to consider one man band companies to be somehow fundamentally different to a "two man band" or a "three man band" company.
They are also trying to intimate that in small companies, an individual's entitlement to a dividend is not justified if they do not make some contribution to the wealth of the business. This is fundamentally against the principle of dividends which, in law, are based on the individuals shareholdings in the company - not the work they do for the company.
In other words, it looks like they will try to treat some dividend recipients differently to others. How will they decide which group of shareholders to treat in which way?
Who will be allowed to keep their dividend and who will be forced to pass it over to their spouse to be taxed as part of the spouse's income instead?
Will they apply different rules to husband/wife sharholdings compared to couples who aren't married?
What about same sex couples in/not in same sex agreements?
Is this a backdoor way to end separate taxation for husbands and wives?
It is a bit of a can of worms which they should open with caution.
The Revenue are trying to distinguish between small owner managed companies and "normal" trading companies. They are trying to establish a precedent in that they seem to consider one man band companies to be somehow fundamentally different to a "two man band" or a "three man band" company.
They are also trying to intimate that in small companies, an individual's entitlement to a dividend is not justified if they do not make some contribution to the wealth of the business. This is fundamentally against the principle of dividends which, in law, are based on the individuals shareholdings in the company - not the work they do for the company.
In other words, it looks like they will try to treat some dividend recipients differently to others. How will they decide which group of shareholders to treat in which way?
Who will be allowed to keep their dividend and who will be forced to pass it over to their spouse to be taxed as part of the spouse's income instead?
Will they apply different rules to husband/wife sharholdings compared to couples who aren't married?
What about same sex couples in/not in same sex agreements?
Is this a backdoor way to end separate taxation for husbands and wives?
It is a bit of a can of worms which they should open with caution.
Eric Mc said:
It is a bit of a can of worms which they should open with caution.
I agree. And one other issue you haven't mentioned - is it right for HMR&C to be able to "reinterpret" how they apply an existing tax law which, as I understand it, is the whole knub of Section 660a. Personally I think this law, regardless of interpretation, is an ananchronistic and chauvanistic throwback to the days where women were not expected to be financially independant and should be struck off the statutes.
It's very interesting isn't it?
My personal feeling is that a change in the law (or victory by hmrc) would be completely at odds with the very concept of share ownership and dividends. My accountant's view is that any new rules will apply to Close Companies only and that paying excessive dividends to relatives or close associates will be become tax evasion rather that tax avoidance.
My specific problem is that I am paying myself too much in dividends and want to offload some onto my wife, before my personal tax bill becomes too high.
My personal feeling is that a change in the law (or victory by hmrc) would be completely at odds with the very concept of share ownership and dividends. My accountant's view is that any new rules will apply to Close Companies only and that paying excessive dividends to relatives or close associates will be become tax evasion rather that tax avoidance.
My specific problem is that I am paying myself too much in dividends and want to offload some onto my wife, before my personal tax bill becomes too high.
Eric Mc said:
The current legal definition of a "close" company is not tight enough to distinguish a one man band operator from a legitimate, genuine shareholder, risk taking but FAMILY OWNED company - of which there are many.
Ah, but therein lies the rub. That statement implies that a "one mand band" company is not a legitimate, genuine shareholder, risk taking company and I beg to differ. Companies House makes no such distinction and, as you say, there is no legal basis for making such a distinction either (and long may that continue).What I find particularly galling is that HMR&C will quite happily try to "have their cake and eat it" for all permutations of employed, self-employed, "disguised employee", "real" (sic) company and "not real" (sic) company, even if it means a paradoxical position.
There's a well documented case of a contractor being caught by IR35 (ie. deemed to be a "disguised employee" of his client) yet, at the same time, denied employee benefits to the same and whatever government benefits that being an employee of the client might bring, since different departments of the government don't have to be consistent with each other (or even themselves for that matter).
Edited by JonRB on Tuesday 17th July 15:39
Just because I phrased my point in that manner shouldn't imply that I believe that "one man bad" companies should be treated any differently to any other sort of company.
Obviously, the Revenue have been trying to make this distinction for the past 8 or 9 years - so far with only moderate success.
Obviously, the Revenue have been trying to make this distinction for the past 8 or 9 years - so far with only moderate success.
David_s said:
Looks like HMRC have lost. Is this the end of it?
Difficult to say. I think we're going to need a few days for the industry experts to give their analysis of it. The Revenue have always argued that the Arctic case is non-typical (well, they would, wouldn't they? 
) so we'll have to see.Gassing Station | Business | Top of Page | What's New | My Stuff