HMRC guidance has now been updated following the judgement in the Arctic Systems Ltd case (Jones v Garnett). Interim guidance had been issued following the House of Lords decision in September of last year.

The update reflects the necessary amendments to the guidance in relation to the settlements legislation.

A copy of the updated guidance is available at http://www.hmrc.gov.uk/practitioners/settlements-legislation.htm.

Arctic Systems Case leads to “Income Shifting” consultation

It was well flagged that HMRC were less than enchanted with the outcome of the Jones v Garnett case, which in essence concerned the attribution of income to a husband and wife who were both shareholders in the husband's service company.

The Treasury has published a discussion document, and draft legislation, to counter Jones v Garnett. As it puts it, the legislation is intended to counteract the tax advantages obtained by the diversion of income to other persons. The legislation describes the diversion of income from one person to another as “income shifting”.

It seems that the proposed changes will apply to two forms of income, profits from a partnership and company distributions (usually dividends). The difficulty with all anti avoidance legislation is that it may unwittingly hamper bona fide commercial arrangements.

The full consultation document is at http://www.hm-treasury.gov.uk/media/1/D/consult_income_shifting.pdf.