'Husband & wife' firms could face tax penalty

Marc Bennett, partner at London chartered accountants Alexander Edward Lee, said this week that 'hidden in the depths of Gordon Brown's pre-Budget report' were provisions to bring in NI changes on the dividends paid out by shareholders of small limited companies.
'Opticians who recently changed the structure of their business from a sole trader or partnership to a limited liability company could find themselves facing greatly increased NI liabilities than they were before the proposed changes,' he said.
Bennett claimed that for shareholders of limited companies, it was fairly easy to incorporate into a limited liability company, but it was both complex and costly to change back into a sole trader or partnership without triggering tax bills.
Further, he claimed the Inland Revenue was 'starting to attack' husband and wife limited companies that paid out dividends for both spouses, even though the profits were generated by only one spouse. He said the Inland Revenue now believed it could use a little known section of the law to issue back-dated assessments for additional tax.
'Opticians looking to incorporate their business or transfer existing shares to a 'non-active' spouse in order to reduce their tax bill should seriously re-think their strategy,' he said.
'Not only could they face a large one-off bill for tax arrears under the settlements legislation, but they could also face a large increase in the amount of NI payable by both themselves and their limited company.'
Accountants Alexander Edward Lee speculated that NI increases on dividends would be announced as part of the 2004 Budget and could be imposed as early as next April.A specialist VAT adviser to the profession has warned that some practitioners will face shock tax and National Insurance rises on limited company profits.
Marc Bennett, partner at London chartered accountants Alexander Edward Lee, said this week that 'hidden in the depths of Gordon Brown's pre-Budget report' were provisions to bring in NI changes on the dividends paid out by shareholders of small limited companies.
'Opticians who recently changed the structure of their business from a sole trader or partnership to a limited liability company could find themselves facing greatly increased NI liabilities than they were before the proposed changes,' he said.
Bennett claimed that for shareholders of limited companies, it was fairly easy to incorporate into a limited liability company, but it was both complex and costly to change back into a sole trader or partnership without triggering tax bills.
Further, he claimed the Inland Revenue was 'starting to attack' husband and wife limited companies that paid out dividends for both spouses, even though the profits were generated by only one spouse. He said the Inland Revenue now believed it could use a little known section of the law to issue back-dated assessments for additional tax.
'Opticians looking to incorporate their business or transfer existing shares to a 'non-active' spouse in order to reduce their tax bill should seriously re-think their strategy,' he said.
'Not only could they face a large one-off bill for tax arrears under the settlements legislation, but they could also face a large increase in the amount of NI payable by both themselves and their limited company.'
Accountants Alexander Edward Lee speculated that NI increases on dividends would be announced as part of the 2004 Budget and could be imposed as early as next April.