Artic systems-does this apply?

shamac

can some clever person explain if the Artic Systems case with the income splitting is relevant to us and if we will get away with it-my hubbie is self-employed oil worker and i do his books, invoicing expenses etc. i don't have any other income. Someone told me it was dodgy and that the HMRC would still look at it ona case to case basis what do you think??

Pennywise

Arctic Systems was lost by HMRC so doesn't apply - in fact it never applied as there was no law preventing husbands and wives being joint shareholders and receiving dividends accordingly, which is why HMRC lost the case.

There was, and still is, the S660 settlements legislation, which was thought to have been well understood by both the tax inspectors and tax specialists & accountants. This did, and does, prevent the issue of a "special" class of shares to a non-working spouse, with different powers and rights compared to other shares, allowing them for example, to receive dividends but not giving them voting rights, for example. Thus "alphabet" share structures didn't work. Another wheeze that didn't work would be where the main fee earner "waived" his dividend so that his spouse got a dividend but he didn't.

So, the answer is that if you both hold the same type of shares, i.e. ordinary shares, with the same rights and powers, then currently HMRC have no way of stopping a non-working spouse holding such shares and being paid a dividend accordingly.

One word of warning though, be careful about how the shares were originally acquired, i.e. whether they were subscribed for or whether they were "gifted" by hubbie, and be careful as there are differences in treatment between legally married couples/civil partner and those who merely live together - common law marriages have no status in law for tax. It is best to get proper professional advice rather than relying on friends and internet forums.

The conclusion is therefore to make hay while the sun shines. Take advantage of the current situation. Last year the Chancellor announced new legislation would apply from this April to prevent "income shifting" as he likes to call it, but the outcry has been so great, and the proposed legislation so poorly drafted, that he did a U-turn in yesterday's budget and shelved the plans for this year, though he has said that he intends to bring something similar in from April 2009.