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What is Section 660a – the new curse of contractors Author Inland Revenue Date 18/11/2004 Article: This is the new (or old) tax which the Inland Revenue wants to stop dividends being paid to spouses where the income in earned by only one spouse. Explanation Here is the Inland Revenue’s explanation of what it is:- The settlements legislation is anti-avoidance legislation intended to prevent an individual from gaining a tax advantage by making arrangements which divert his or her income to another person who is liable at a lower rate of tax or is not liable to income tax. Most commonly the legislation will apply where an individual seeks to divert income to members of their family or friends. Good Test A good test of whether or not the legislation applies in a business situation is to consider whether the same payments would be made to a person who acquired shares in a company or a share of a partnership at arms length. Or whether income is being paid simply because the recipient is a spouse or child or some other individual the business person might wish to benefit. The legislation was originally enacted in the 1930’s and was brought up to date in 1995. The legislation applies to many trusts but can also apply to other arrangements involving individuals, companies and partnerships. If the overall effect of the whole arrangement is to transfer from one individual to, say, the settlor’s spouse or unmarried children, the settlements legislation is likely to apply. Waiting Game Sometimes the whole arrangement might not be clear until sometime after the company is set up. So it might be necessary to wait until dividends or remuneration are paid before it is clear that the legislation applies. The courts have limited the scope of a settlement to where there is some element of bounty. Broadly, bounty is the provision of value without any corresponding quid pro quo, usually a gift or transfer at less than full value. So, for example, someone giving away a right to future dividends for no consideration is a bounteous transaction. However, whether or not there is an element of bounty in a particular situation will be something that will be considered in all the circumstances of the case. When it Applies So the settlements legislation applies where the arrangements are:- • bounteous, or • not commercial, or • not at arm’s length, or • in the case of an outright gift between spouses, wholly or substantially a right to income   Umbrella Companies | Personal Service Companies Company Set Up | Foreign Exchange | Contractor Insurance | Contract Search | IT Contract | Contractor Mortgages | Contractor Pensions | IR35 | Umbrella Company IR35 Advice News Jobs Money Forum

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