Section 660 - ACCA says small companies need tax stability

The outcome of this week's 'Arctic Systems' case concerning the taxman's treatment of dividends paid by family companies could have major implications for as many as 200,000 small businesses warns ACCA (the Association of Chartered Certified Accountants).

Glenn Collins, Head of Business Advisory Services at ACCA, said: "This will now mean that any husband and wife companies where shares have been transferred between them and dividends paid out could be subject to an Inland Revenue enquiry. Many have legitimately carried out these transfers in organising their company structures and also their tax affairs - these could now be overturned completely given the outcome of this case.

"Regardless of the rights or wrongs of the tax issue at stake - and it is worrying that the Court has effectively dismissed a wife's contribution to the business in this way - the main problem is that tens of thousands of businesses have been advised by their accountants to set up their operations in this way because the Revenue has always accepted it. Businesses must have stability and clarity in the tax system in order to plan - if the rug can be pulled from under their feet so easily it makes things very difficult for small companies to work."

This important case was brought before the Court by the Professional Contractors Group, a not-for-profit organisation representing the freelance community in the UK. The Group lost the appeal to the Special Commissioners, with the two Commissioners disagreeing, one using a casting vote.