May 2005

INCREASED TAX FOR BUSINESSES AND CONTRACTORS EXPLAINED

AAn information evening will take place at the end of this month where attendees will hear all about recent changes to a tax law known more commonly as Section 660a which is set to dramatically effect family businesses.

Acumen Accountants and Advisors is jointly hosting this event with Freelance Euro on Tuesday 31st May at the Marcliffe at Pitfodels Hotel in Aberdeen at 6pm for a 6.30pm start.

In a test case which took place this month, a High Court judge decided that HM Revenue Customs can now use the Section 660a law to undermine a common method of tax planning in small businesses.

Managing Director of Acumen Accountants and Advisors Ltd, Sandy Robertson, explains more: “In many small businesses, in particular those run by husband and wife, one spouse generates the profits whilst the other often deals with the administrative aspects of running the business, sometimes on a part time basis.

“It is common practice for the ‘earning’ spouse to take a lower salary and share the remaining profits equally with the ‘non-earning’ spouse. This approach allows the couple to save on tax. Allocation of profits in partnerships and limited companies, to suit the circumstances of business owners, has been an important part in tax planning for decades.”

Sandy continues: “However, these recent findings mean that profits allocated to a non-earning spouse can be added back to the earning spouse when calculating the tax liability. Potentially this will increase tax bills for small businesses and in some cases, tax bills could increase by up to £6,500 per year.”

Within the oil and gas industry for example, it is common practice for a freelance contractor to sell his services via a company and for his spouse to be part of the company. If the profits earned have been shared between the couple, there could be a large tax bill due. Alf Gordon, managing director of Freelance Euro, a company that provides services to freelance contractors, said: “All contracting businesses where joint income comes from the work of one individual should review their tax planning arrangements very soon.”

The case may be subject to an appeal but, in the meantime, many small businesses will be left wondering about their tax situation. The evening at The Marcliffe at Pitfodels will explain the new tax law and help business owners identify tax and financial planning strategies to mitigate the effects of increased tax bills.

To book a place at this presentation and find out more about how these changes could effect your business, call Erin Harris at Acumen on 01224 573904 or email her at erin.harris@acumen.info