Two really quick questions - sorry guys, I know you've heard them all before!

**TheCyclingProgrammer** · 9 December 2016, 20:40

1. Maybe
2. That's a matter of opinion. Only spouse-related cases have been tested in court. It's complicated. There's undoubtedly a risk of being potentially caught by settlements legislation (it's not a certainty) though the risk is probably quite low.

Speak to your accountant and read the newbies guides.

**Platypus** · 9 December 2016, 21:16

Re. (2)

See other threads, and don't !

**Osiris1337** · 9 December 2016, 22:21

Originally posted by TheCyclingProgrammer View Post

1. Maybe
2. That's a matter of opinion. Only spouse-related cases have been tested in court. It's complicated. There's undoubtedly a risk of being potentially caught by settlements legislation (it's not a certainty) though the risk is probably quite low.

Speak to your accountant and read the newbies guides.

Thanks for the reply.

My conflict comes from the fact that I seem to have a very "safe" accountant. It seems like every time I run something fairly innocuous past them they act like I'm suggesting something heinous. I only ran these two things past them today and I got what frankly amounted to a 30 minute lecture on how bad it would look to the tax man. Yet in the office I'm surrounded by people who do exactly what I just asked and they and their accountants don't bat an eye lid.

It's frustrating because I don't get the ambiguity - either it's legal and I can do it, or it's not and I shouldn't. I don't understand why it has to come down to - what appears to be - a judgement call on my part.

Hence my asking on here just to spread my net a little wider in terms of opinions.

**SueEllen** · 10 December 2016, 02:22

Most tax things small business people do in the UK falls into a grey area so it depends on the individual accountant's level of risk whether they think certain actions are appropriate.

The only advice myself and others can definitely give you is DO NOT make your girlfriend a shareholder. Only if you get married have a long hard think before considering doing so. The reasons for this are more than based around tax.

**TheCyclingProgrammer** · 10 December 2016, 02:42

It's frustrating because I don't get the ambiguity - either it's legal and I can do it, or it's not and I shouldn't. I don't understand why it has to come down to - what appears to be - a judgement call on my part.

Hence my asking on here just to spread my net a little wider in terms of opinions.

That's because, in the second case at least, there IS a lot of ambiguity. There was a time when it was equally uncertain for married couples and it took a lot of time and effort and legal wrangling before some case law was established (the Arctic case).

I say the risk is low mainly because HMRC have shown little interest in pursuing income splitting for years but the fact remains that there is a risk largely due to the uncertainty.

I made my wife a shareholder before we were married and I'm about as confident in my position as I could be in the absence of any case law to say otherwise. I can't really be bothered to into the technical ins and outs - needless to say I spent a LOT of time researching and understanding the settlements legislation. If you do a search on here you may find some of my lengthy posts on the subject.

However as Sue Ellen says, tax isn't the only consideration here anyway.

As far as your travel expenses go, there are lots of rules around these too however there's less ambiguity. Whether you can claim travel and subsistence depends on things like your IR35 status, where you're working and for how long. It may be perfectly possible to claim your travel costs which is why my original answer was maybe.

To be honest, while I can completely understand your accountants caution on the shareholding issue, I don't understand why they haven't discussed your travel expenses in more detail to establish if they would be claimable. Claiming travel expenses is a fairly standard thing.

**NotAllThere** · 10 December 2016, 07:33

Originally posted by Osiris1337 View Post

...
It's frustrating because I don't get the ambiguity - either it's legal and I can do it, or it's not and I shouldn't. I don't understand why it has to come down to - what appears to be - a judgement call on my part....

It's often because the UK runs under a self-assessment regime. I.e. we're the ones who decide what to do, and the tax man later tells us whether we can or cannot, and how much extra tax we owe.

However, Arctic established that, while dividend splitting is settlement, there is an exemption for married couples.

From here:

This exemption had been introduced as part of the independent taxation reforms in 1990, specifically to enable spouses to make outright gifts to each other without fear of the settlement rules being applied.

This valuable escape clause applies where there is an outright gift of assets that does not represent an entire or substantial right to income.

So it seems to me, if you dividend split with your girlfriend, then you are caught by the settlement legislation.

**TheCyclingProgrammer** · 10 December 2016, 09:16

The above post is wrong, but it's a common misunderstanding of the legislation and the purpose of the spouse exemption.

The "spouse exemption" does not prevent a married couple from being caught by settlements legislation. It's not some magic get out clause. It simply ensures that married couples are given equal treatment under the rules as non spouses in certain circumstances. It does not automatically mean non spouses are caught.

The main factor in whether a settlement is the settlor retains an interest in any settled property. By default the settlor and their spouse would be treated as one and the same under this rule (as the settlements legislation dates to a time when married couples were taxed jointly).

As such, it would be impossible for somebody to give property to their spouse without being deemed as retaining an interest and being caught. Unmarried couples or other family members on the other hand would not be caught unless the settlor retained an interest in some other way (usually by attaching some form of conditions to the gift that would see the property revert to them, see HMRC examples).

So if the spouse exemption applies all it does is remove the spouse from the equation when considering whether there is still retained interest making it possible for inter-spousal gifts without then being caught automatically. But if there are still conditions attached or the settlor has some other beneficial interest in the property the arrangement can still be caught (because it would no longer be considered an "outright gift", which is defined pretty much identically to the definition of retained interest).

From the article you linked to (which is a very good overview):

Can the settlements legislation be applied to other members of the family or unconnected parties? The (then) Inland Revenue certainly considered this to be a possibility.

The April 2003 Tax Bulletin (RI 268) at example 2, deals with a case involving “Aunt Jane” holding shares. This is based on the notion that the settlor’s earning power is the property being transferred.

The analysis is that the settlor’s ability to withhold their services represents a retention of their interest in the settlement, which would therefore be caught by the basic “settlor-interested” settlement rule.

However, this line of thinking has subsequently been firmly rejected by Sir Andrew Park QC (as he is now) in Jones v Garnett [2005] STC 1667.

In the High Court, he concluded that if Mr Jones’s co-shareholder had been his sister, the settlement rules could not have applied. It should therefore follow that HMRC cannot use the settlements legislation to attack share transfers and subsequent dividend payments and dividend waivers made in favour of other family members and unconnected parties. The wording of the settlement code certainly supports this.

So, technically speaking the risk of being caught for both married and unmarried couples (or other family members except minor children) should in theory be about the same. The only reason married couples have a bit more certainty is because it's been tested in court and the Arctic case didn't really look at the issue of retained interest in much more detail.

**NotAllThere** · 11 December 2016, 07:21

Good point, well presented.

**BrilloPad** · 11 December 2016, 08:12

Originally posted by Osiris1337 View Post

Thanks for the reply.

My conflict comes from the fact that I seem to have a very "safe" accountant. It seems like every time I run something fairly innocuous past them they act like I'm suggesting something heinous. I only ran these two things past them today and I got what frankly amounted to a 30 minute lecture on how bad it would look to the tax man. Yet in the office I'm surrounded by people who do exactly what I just asked and they and their accountants don't bat an eye lid.

It's frustrating because I don't get the ambiguity - either it's legal and I can do it, or it's not and I shouldn't. I don't understand why it has to come down to - what appears to be - a judgement call on my part.

Hence my asking on here just to spread my net a little wider in terms of opinions.

I used to have a very safe accountant. After a conflict I switched to QDOS. Who were far easier to deal with. And less safe. And I got less enquiries from QDOS.

Some accountants see themselves as agents of the taxman.

Two really quick questions - sorry guys, I know you've heard them all before!