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S660A Settlements Legislation
The intention of the legislation is to prevent you passing income streams, or assets away to others to reduce your overall tax liabilities, on the basis that you will have it back later. Most commonly the legislation will apply where an individual seeks to divert income to members of their family or to friends. The recipient of the income stream or assets is likely to be liable to a lower rate of tax, or indeed not liable to tax at all. The legislation is only applicable where income is diverted and not where an asset is given away on a genuine basis. Who Could It Affect? The legislation could potentially affect thousands of family based companies where shares have been distributed in a disproportionate basis to their involvement in the company. A successful challenge can result in a considerable amount of back taxes and interest becoming payable covering the last six years. It has been accepted for some time now by the accounting profession that the gifting of preference shares would be caught under S660A legislation (Young v Pearce 1996). The contentious area however is when 'ordinary' shares are gifted. Previous thoughts were that this would not be caught by the legislation. However, this is the area that is currently being attacked by the Revenue. The Revenue has recently been given a fresh impetus to challenge these arrangements with their victory against Arctic Systems Limited, although their victory was by no means unanimous, it has sent a shock wave around the small business community. See Arctic Chill article. Arctic Systems is an IT consultancy firm run by a husband and wife. They hold 50% of the shares each, but only the husband is a Director. He is also the fee earner. Low salaries had also been drawn with the remainder distributed by way of dividend. What Precautions Can Be Taken? Qdos Consulting Limited are leading specialists in S660A and are able to advise on your status under this legislation. Qdos has also developed TLC660A which is a revolutionary insurance concept, giving you the ability to insure yourself and your business comprehensively against the consequences of a Revenue investigation into your status under the Section 660A legislation. Not only are representation fees covered, but also any tax, interest and any penalties in the event of a successful claim by the Revenue under Section 660A (see TLC660A). Purchase TLC 660A Insurance. Article by: Ashley Horton, Qdos Consulting Limited. Search for more S660A News Added to site on 22/11/04 |
