A tax saving arrangement used by thousands of small businesses is to continue following a House of Lords ruling.
The decision in favour of Geoff and Diana Jones of Arctic Systems in their battle with HM Revenue & Customs has been applauded as ‘a common sense win for small businessmen and women’, by accountancy firm PKF.
However, Peter Penneycard, PKF partner and national director of tax has argued that the high-profile case should spark a major review of small business taxation.
According to Penneycard, the case demonstrates the government’s failure to put in place a stable tax environment for small business.
He predicts that HMRC will now seek a change in legislation to end the tax-saving practice it opposed in the case, of sole traders forming consultancy companies so that they can pay themselves and co-owning spouses dividends, which attract less tax.
“PKF welcomes the Lords’ decision but clearly HMRC is not going to let the matter rest there”, Penneycard said.
“Its next move is likely to be a push for changes to legislation to prevent all small company owners using what is a long-standing practice to their advantage.”
“Unfortunately, while HMRC may increase their tax take, this is likely to make starting a new business less attractive and damage entrepreneurial spirit within the UK.
Penneycard said it was time for a ‘complete overhaul’ of the small business tax regime in favour of offering more incentives for people to start new businesses.
© Crimson Business Ltd. 2007
