S660A

Many small businesses and contractors try to avoid their full tax burden by using a limited company as an intermediary, with the husband and wife - or other close family members - holding shares in the business.

S660A is part of the so-called "settlements legislation", which was first introduced in the 1930s. Its aim is to prevent someone characterising their own income as someone else's in order to pay less tax on it and HMRC has been seeking to apply it to freelance contractors and consultants when:

1. There is a limited company (or partnership)
2. Ownership is shared with someone else (eg a spouse)
3. The freelancer is the sole or main fee-earner
4. The other owner receives dividend or profit share

HMRC is enthusiastically enforcing S660A by going after 'husband & wife' companies. If any family member holds more than 5% equity, everyone becomes subject to S660A and IR35.

Currently, HMRC's interpretation is not valid in law, although, following their defeat in the House of Lords (the Arctic Case) they have stated that they will be introducing revised legislation.