Blow
for Small Companies? |
| August
2007 |
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| In April 2005,
the High Court ruled in favour of the Revenue in the Arctic
Systems settlements case. Geoff Jones, an IT consultant, drew
only a low salary so that the majority of the profits could
be distributed as dividends in respect of which his wife was
able to benefit as only a basic rate taxpayer. The judge commented
that because Geoff was paid at a lower rate than he could have
earned in the open market, the Revenue had a stronger case.
It would now seem that directors of small companies will have
to pay themselves market salaries before they can contemplate
tax efficient dividends. |
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| and the good news....
in December 2005, the Court of Appeal handed down a unanimous
verdict in favour of the taxpayer in the case of Jones–vs–Garnett
(Arctic Systems). The Court determined that Mr Jones had not
created a settlement for tax purposes in favour of his wife
when the couple jointly went into business together and, consequently
the arrangements in place for the payment of salary and dividends
and the taxation thereof could not be challenged by HM Revenue
& Customs. |
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| In
the final judgement in the long-running debate, the House
of Lords ruled unanimously on 25th July 2007 in favour of
the taxpayers, Mr and Mrs Jones, and held that the dividend
income received by Mrs Jones could not be treated under
the settlement legislation as if it had been the income of
Mr Jones and so liable to tax at his higher rate. |
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