Tax win for small business
by Brian Turner
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A small business has won a landmark court ruling over how much tax they pay.
According to the BBC, the case hinged around the paying of dividends to a spouse who was the partner in the business:
The company had a turnover of £91,000 for the year in dispute, derived from Mr Jones’s activities.
He drew a salary of £7,000 and his wife drew a salary of £4,000 for administrative work.
After expenses and corporation tax the couple shared the remaining £60,000 in dividends.
They paid less tax and national insurance because they took dividends rather than bigger salaries and a greater portion went to Mrs Jones to use up her lower tax rates.
HM Revenues and Customs had claimed that because the wife was only an administrative assistant in the business, she was not entitled to a larger share of the dividends for tax avoidance purposes:
HMRC ruled that income from company dividends, received by a non-earning or low-earning spouse who is co-owner of the business, should be taxed at the same rate as the main earner’s income.
Despite an earlier ruling in favour of the tax man, the final judgement came today from the Court of Appeal - small business could split dividends between partners to cut their tax bill.
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