TAXATION

Family companies – how to protect yourself against Revenue attack

HM Revenue & Customs (HMRC) will challenge an Appeal Court decision that dividends paid by a family company to a non-working spouse cannot be taxed as the working spouse’s income – the infamous Arctic Systems case.

It is likely to be several months before the House of Lords hears the case, leaving many couples uncertain as to how much tax to pay.

If the Lords decide in favour of HMRC, taxpayers whose assessments are ‘on hold’ pending the decision will be liable to additional tax plus interest. HMRC may also open new enquiries into the tax affairs of people in a similar situation.

One way you can protect yourself against interest and penalties on tax paid late in such circumstances is to buy certificates of tax deposit. This allows you to pay the potential additional tax on time without drawing HMRC’s attention to the fact that you think your self-assessment might be inadequate.

If after an enquiry you use the certificate to pay additional tax, the tax is treated as if you had paid it on the due date for payment of the tax, or on the date you bought the certificate if that is later than the due date. If it finally turns out that you do not need the certificate to pay the tax, you can redeem it with interest.