DTI Advice May Conflict With Inland Revenue’s Section 660 Position

by Robert Lee, Tax-News.com, London

13 October 2004

Despite the recent decision by the Special Commissioners for Income Tax regarding the Section 660 case, it has emerged that Department of Trade and Industry guidance is advising small firms to “top up” shareholder remuneration through regular share dividends.

The guidance, located on a government website known as ‘Business Link, managed by the DTI, advises families to implement remuneration strategies that are “consistent, fair and open,” but also adds that shareholding family members who are not active in the running of the business “may question the remuneration of those who are.”

Whilst the guidance does not actively recommend that family members divert dividend income between family members so as to mitigate the effects of taxation, some observers nevertheless point out that the DTI’s advice is somewhat contradictory to the Inland Revenue’s position on Section 660 which was confirmed in the recent legal battle between the taxman and small firm Arctic systems.

Furthermore, according to industry news service Accountingweb, Ernst and Young tax partner Anne Redston recently told the BBC's Money Box programme that the DTI views the way firms such as Arctic Systems are structured "a perfectly acceptable way for them to do business".

The Revenue has insisted however, that its application of the 660 rules is designed only to catch “contrived” arrangements.

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