Tax ruling good for partnerships

The Inland Revenue has lost the latest round of a court battle against small family businesses over what it perceives as excessive payments to “non-working” partners in order to cut tax bills.

Accountant Grant Thornton’s Carlton Collister said: “This is good news for the small number of farmers who may have been caught by this contested area of tax legislation.”

Mr Collister said some farming partnerships where, for example, a wife who didn’t work on the farm, own any of the land or have a significant income of her own but was paid a share of the profits to take advantage of her lower tax band, could have been affected.

However, the Inland Revenue could still take the case to the House of Lords or change the law anyway, he added.

“Farmers should examine how their partnerships are structured to ensure they are not susceptible to revenue attack.”