Reply to: S660: Impact of Artic on Company Set-ups?

Re: Errm...

Very funny

"The courts will decide what set of conditions (of which the salary paid to the fee earner is just one) stops the payment being bounteous"

tim

Re: Errm...

Sorry mailmnnz, I cannot have a conversation with you on this because we disagree on a fundamental point which makes all the rest meaningless.

Ah yes...here it is :rollin

Regards

Mailman

Re: Errm...

I did answer the question.

Perhaps you should read my answers more slowly in future.

tim

Re: Errm...

Mailman, I told you why I didn't answer the question. The courts will decide what set of conditions (of which the salary paid to the fee earner is just one) stops the payment being bounteous, but as you seem to believe that the judges are in Gordo's pocket you won't see this as being any different to the IR doing it (even though it is). There is no point discussing this further on this basis.

Stop being evasive and answer the question...who determines what the going rate is?

And no...it is your opinion that I believe they judges are in gordo's back pocket, which you are using conveniently to avoid answering a simple question.

Mailman

Re: Errm...

Mailman, I told you why I didn't answer the question. The courts will decide what set of conditions (of which the salary paid to the fee earner is just one) stops the payment being bounteous, but as you seem to believe that the judges are in Gordo's pocket you won't see this as being any different to the IR doing it (even though it is). There is no point discussing this further on this basis.

Malvolio, was your question aimed at me? Do you really think that I would spend an hour and a half of my time creating a well considered response to your original question without my having read the judgment three times to make sure that I fully understood it?

However, it seems that you have not. The original perverse judgment is now a dead issue. It says so in para 6. And this decision was not taken by the judge, but by Gammie. (The judge did decline to rule on the issue, but Gammie had said that he would like this for future reference, not for application on this appeal). AIUI Gammie cannot now raise this issue again.

I agree with you that it appears that Park has created some of his justification from evidence that didn't appear in the original judgment, but as I haven't seen any of the evidence (only a 3 page summary) can't be sure that it wasn't introduced by the revenue at the start.

Both of you. It seems that it will come as a surprise to you that 50% of the time that a brief stands up in court the judge decides that his evidence is legally wrong. This proves nothing about the thought processes of the judge.

I concede that he might be wrong in law (I have never said otherwise, my claim in this thread was that his judgment was clear), I don't agree with your reasons as to why. Perhaps the appeal will help us find out.

tim

Re: Errm...

You didnt answer my question Tim...who determines what the going rate is for any particular task? The IR?

As Malvo said, I doubt this guy is incompetent but his ruling does ask a lot of questions on just how he could have got there without taking in to account the process used. However, if the guy is incompetent then this opens up a whole new can o worms!

Mailman

Re: Errm...

See, you're still doing it... Wake up and smell the coffee.

The grounds of the appeal are, I suspect, more to do with the original perverse conclusion and the equally perverse upholding of the decision, which was supported in the ruling (have you read it, by the way) by disregarding swathes of argument supporting the Arctic position, and also introduced new concepts (which, incidentally, is also wrong since the appeal has to be based on arguments in the original case only)

The only possible conclusions - given that Parks J is not corrupt, which I do not believe for a minute he is - are that either he is incompetent (unlikely) or he is refelcting the will of Parliament in his interpretation of the law so as to support the IR's position contrary to the evidence cited. This latter option is what seems most probable, so we are forced to conclude the judiciary are demonstrably politically motivated.

In his defence, he may well believe that Arctic were deliberately bending the regulations to minimise their tax liability, but he should also know that this is not illegal, and is condoned both by existing practice and ministerial pronouncement. Equally it does seem not have occurred to him to ask why the IR have resurrected an obscure 50 year old law to attack a company previously found to have "escaped" IR35 and why, if it is a matter of legality, why the IR have dropped their claim against Arctic for the previous 6 years if that tax was also "illegally" withheld.

Re: Errm...

Sorry mailmnnz, I cannot have a conversation with you on this because we disagree on a fundamental point which makes all the rest meaningless.

I don't believe that there is any political interference whatsoever (direct or indirect) with the judiciary on this issue.

ISTM that the judge has reached his conclusions in law, based upon a disinterested reading of 80 year old legislation and 50 year old case law (established about income sharing with minor children) re-applied to incoming sharing with a spouse (which until the era of separate assessment achieved nothing, and was therefore never an issue).

If you are convinced that he has come to the conclusion that he did, based upon some political bias them it is pointless proceeding further.

The government don't need to put pressure on judges in such matters. If they don't like the result that they get, then they can simply change the law, so why bother?

tim

Re: Errm...

"We are campaigning for clarity, consistency and common sense in regulation and legislation," Dr Juden added, “and are pleased to have the generous support of leading tax barrister James Kessler QC, who believes that family businesses are being put in an impossible situation.”

A common sense approach would be that if both commissioners couldnt agree then the case would go in favour of the "accused".

What Im particularly disappointed about is how the Judge completely and utterly ignored the process used by the Commissioners in how they came to finding the "accused guilty".

He had a golden opportunity to ensure the IR revied all cases in an open and honest way but he chose to completely ignore this and just followed the party political line of finding the "accused guilty".

The other thing I find interesting Tim is...just what is a "market rate" and who determines what that is? The IR?

Mailman

Re: Errm...

So you can diagree with me and I can't disagree with you? OK, I can live with that

And if it is so clear cut that it is an important contribution, why is the brief in the Arctic case not using it in his evidence?

He did. Parks J and Dr Brice both chose to ignore it (in fact Parks seems to have ignored quite a lot of the evidence that disagreed with his apparently pre-decided conclusions).

That doesn't make it right, in fact it strengthens the needs for appeal to bring clarity to whatever the "acceptable position" really is. It's not about Arctic any more, it's about any small Ltd Co run by husband and wife. Understand now??

Re: Errm...

I am not talking B'********. (quite how you can say this because you disagree with one line is ridiculous)

Whether looking after the kids is a valid contribution to a business has got nothing to do with what I think.

It is what the law thinks that's important, and the law thinks that it should be ignored.

Point me to a case where anyone has successfully argued that it is a valid reason for paying a wife part of you earnings (I am sure that you won't find one). And if it is so clear cut that it is an important contribution, why is the brief in the Arctic case not using it in his evidence?

tim

Re: Errm...

OK. You're talking b****cks, but it's a free country. For example most people would consider "looking after the kids" to be a fairly valuable contribution to support someone running a one-man business but I'm not inclined to argue the detail. Let's try it in words you might understand...

The Swedish guy who owns IKEA is a UK resident who earns around £137 million a year. He sends it all to his wife via her 100% IKEA shareholding. She is a Monaco resident who pays no taxes. She owns a house in London which she loans to him rent free. She also pays an allowance of around £130m pa to support the house and his incidental expenses. There is no question that this is a bounteous arrangement in the same way that Geoff and DIana Jones are found to have set up. So why is Geoff being prosecuted for an entirley legal corporate structure and Mr Ikea, who is earning £137m pa tax free, is not? That's what I mean by consistency and proportionality.

Re: Errm...

1) "define proportionate". Why do I need to, what do you not understand about the dictionary definition :-). Do you mean, "define the proportions". OK so there is some lack of clarity here, but I don't think that it is very large. Look at it this way, take the worth to the company of the job that each of its employees actually does and multiply by the hours that they do. Mrs Jones did a job worth 5 pph (you might make a case for 8, but no more), for 5 hours a week. Mr Jones did a job worth at least 20 pph for 40 hours. This gives 5*8:20*40 = 40:800, or 1:20. lets be generous and call it 1:10. There are other ways of defining the proportions but do you really think that if you stood up in court and tried to justify more than this that you would win?

2) "Mrs Jones did real work". Yes she did, but it was purely admin work and she was fully compensated for it via a salary. Anybody could have done it. The company wouldn't have gone broke tomorrow if she hadn't done this work (whereas it would have if Mr Jones ceased working, or indeed if Mrs Jones' marketing effort was cold calling end clients rather than just fielding calls from employment agencies). The test the courts will apply is "if just anybody *had* done this work, would the fee earner still have diverted such a large proportion of their income to them", no of course they wouldn't have and you are fooling no-one if you claim otherwise.

3) Capital Input. Of course someone is entitled to a return on their capital input. But it has to be a reasonable return, 10 perhaps 20%, but not 100s. Mrs Jones invested one whole pound. Do you really think this entitles her to an income stream of 10K pa? Once again, as it is Mr Jones who is controlling the amount of the dividend, the question the court will ask is "if the fee earner didn't expect to retain an interest in the money, would they still declare such a dividend per share", and again you would be fooling nobody by claiming yes.

4) "Staying home to look after the kids". Rightly or wrongly this is not a valid business reason for diverting a proportion of your income to your spouse. This justification could equally apply to hundreds of thousands of perm employees who couldn't do their jobs if they didn't have a wife at home. Some have even tried to divert some of their salary to their spouse - and failed. There is no lack of clarity here. I believe that this is a factor that is completely ignored. I know there are some people who disagree with me on this. I look forward to this issue being brought before the court for a decision (though personally I don't think you'll find a brief who will give you odds on winning).

5) "market rate", No the judge did not get this out of thin air, it was in the Revenue's case. And he didn't leave it undefined either, he said "paid the going rate for employees carrying out the sort of work which he does". I think that everyone knows what this is at the lower end (pretending that you don't is disingenuous). It means about 40K (remember Mr Jones is an experienced practitioner, he isn't a raw graduate). I know that there is a claim that it is much higher than this. But if you do the maths this difference is irrelevant. By the time you have paid a salary of 40K, you have paid more in extra NI, than you can save in HRT by Dividend Sharing, so there's no point paying a 40K salary and dividend sharing, the best compromise is to continue with a low salary and live with a lower ratio of dividend sharing (even if that ratio is 100:0). And I don't think the argument that we should use the "market rate for owners of SMEs" works, because the judge specifically said something different.

6) Perverse judgment. This is now irrelevant. We have reached a higher court. The PCG could have argued for the High court to send the case back to lower court to reconsider their verdict, but everyone accepted that the case would still have come back to the High Court if they had, so they chose not to do this (this action would have made a difference to the PCG’s costs and the timing of the result, but that is all). The PCG chose not to peruse this and the issue is now dead. It cannot be argued again. As to the point that the legislation is unclear because two professionals disagreed, then Park’s judgment has solved this dilemma. He has said that Brice was right and Powell was wrong. He has ruled that, as a matter of law, an agreement by a couple to jointly run a company so that they can dividend share is an arrangement, and that if the split is wholly disproportionate to the individual’s commercial value to the company that there is a bounteous settlement potentially subject to a tax charge. Unless an appeal on these issues is won, this is now cast in stone and is the new world in which you have to work. This seems clear enough to me, something in law is not unclear simply because it is different to what *you* though it was (or ought to have been). The only item left unclear by the judge is the issue of: what is the level of disproportional sharing that will not be bounteous. I think that I’ve covered this issue already.

I note that the PCG have announced that they will appeal. They will be doing so on the points of law that Park established. An appeal will not result in any clarity on the points left unclear by Park. Another test case will be necessary for that (because that is the way the law works).

tim

Re: Errm...

There is certainly some clarity. It gives a sort of "feel" for some things which may be caught. But lots of situations are different.

Mine for example; shares are owned 50/48.

When the 40% was sold to sombody (who I later married) she paid a fair commercial price for them, and generated about 40% of the fees. Clearly not caught.

But now I generate all the revenue. Is it caught now? Should it be?

If it is not caught then why should the Jones be?
If it is caught then it is simply arbitrary taxation. How can something become a settlement which wasn't originally simply because of future changes in circumstance?

I accept the 8% I gave my wife after we got married as caught and will declare those divis on my SA form. But not the rest.

If only

..it were that simple.

Firstly, define proportionate. Diana Jones did real work for Arctic, and she paid for her share in cash at the outset. My other half has a well paid job and, at the beginning of my company's existence, paid in a significant amount of money to keep us in beer and skittles until I actually earned some real income. There are a lot of corner shops, chippies, newsagents and pubs where one half stays home and guards the kids while the other earns the money. Where, exactly, do you draw the line about "input to the company"??

Secondly, Parks J introduced, out of thin air, the concept of a market rate. Just what the h*ll does that mean?

Finally, the original judgement was perverse in that, faced with a diametrically opposite verdict from herself and the other commissioner, Nuala Brice used a casting vote to support her own viewpoint, against all rule and precedent.

And this is clarity?? I think not.