Revenue attack Husband and Wife Companies
Many of you will have seen an article in the Daily Telegraph and correspondence in the Sunday Times drawing attention to the apparent change of heart on the part of the Inland Revenue as to the way in which dividends paid by husband and wife companies are taxed.
There are two separate scenarios depending on how the company was set up. One applies where shares have been subscribed for by both husband and wife when the company was initially formed. The other applies where shares have been gifted between spouses and then a dividend paid. Although the approach to these two scenarios are different the Inland Revenue are arguing that where the husband is the “main worker” in the company and therefore responsible for generating the bulk of any profit then the Inland Revenue is seeking to re-characterise, in whole or in part, dividends paid by husband and wife companies as income of the main worker in the company. The consequences will be a demand for additional tax where the main worker is a higher rate taxpayer but the spouse is a basic rate taxpayer.
The position generally held by the accounting and legal professions is that the Inland Revenue’s view of the rules is incorrect. It is, however, important that those who may be affected are aware of the situation.
We will keep you updated of any developments but if you would like to discuss how this change may affect you please contact us. For details of how to do this click on the Contacts section.
Clive Jones – Clifford Towers, Chartered Accountant
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