Customs wants dividend rule appeal

The taxman has asked the House of Lords for permission to appeal against a court ruling last December that could have benefited some family farming businesses.

Revenue and Customs is unhappy with the way some small firms cut their tax by paying large dividends to the spouse of the principal worker.

But the court of appeal disagreed and ruled in favour of the defendant, Arctic Systems, a husband-and-wife IT consultancy.

This ruling could have applied to a farmer’s husband or wife with no significant income of their own who did not work on the farm or own any of the land, but was paid a share of the profits, said Grant Thornton’s Carlton Collister.

Mr Collister said that, pending the appeal, farming businesses with company structures similar to Arctic should be able to file their 2005 tax returns without adjustment.

But the Revenue considers that other businesses, such as partnerships, may still be affected, after their “settlements” guidance issued in November 2004, he added.