Relief as taxman fails to keep up with the Joneses

Published on Sunday 29 July 2007 00:18

THE average taxpayer might have little sympathy for Geoff and Diana Jones, the husband and wife team who took on and beat the taxman last week in a landmark case.

The Joneses split dividends from their business, Arctic Systems, in a way which gave them a lower tax bill than would have been the case if Mr Jones had taken most or all of the surplus.

HM Revenue & Customs tried to force them to pay more tax, arguing that Mr Jones was paying himself an artificially low salary to boost dividend payments to his wife. But law lords took a different view, bringing relief to an estimated 300,000 small businesses which use similar arrangements.

Most workers are trapped in their employers' PAYE systems and cannot use dividends to lower their tax bills. Many will wonder whether they would pay less if the 300,000 were brought in by the taxman's net.

But HMRC was far too aggressive. It tried to alter the tax rules by dragging a couple running a modest IT business through the courts for five years.

By treating Mrs Jones as indivisible from her husband, it attempted to reverse a century of progress on women's rights.

Now Chancellor Alistair Darling wants to change the rules so that the taxman can legitimately take more from husband and wife businesses.

But Darling should tread carefully. If he makes it more cost-effective for couples to divorce than to stay together, that will give David Cameron an open goal for his family values campaign.

It should not be beyond the intelligence of HMRC, which employs 80,000 staff, to devise a fair system to determine what should be taxed as income and what should count as a return on investment.

New Connection

CHANGES are afoot at Connect, the group which grooms technology companies for investment. Andy McNair, who has run Connect for three years, is leaving to join former Scottish Enterprise boss Robert Crawford's business development group at Glasgow Caledonian University.

His job will be taken by Gill Mayman, who has been with Connect for 11 years and knows the sector inside out.

McNair kept a lower profile than his predecessor, Ian McDonald, and I sometimes found it difficult to interpret his subtle musings. But insiders credit McNair with getting Connect onto a sound economic footing. He also improved relations with Scottish Enterprise, although Connect suffered with SE's budget cuts last year.

Ian Ritchie, Connect's chairman, believes the new SNP administration could provide fresh opportunities for Connect. For example, devolving local economic development to local authorities could create demand for the Connect network, which has a presence in Edinburgh, Aberdeen and Glasgow.

Connect may also be able to tap into the Scottish Funding Council's budget for technology transfer, which is set to grow to 40m from 17m within a few years.

Last year Connect scrapped its Springboard conferences for very early-stage companies. It is now more focused on training and mentoring.

But the flagship Connect Investment Conference, where entrepreneurs pitch their plans to venture capitalists, is still the most eye-catching item on its calendar.

This year the conference moves to Edinburgh's Roxburghe Hotel from the Sheraton, where it had been held for donkey's years, in an attempt to freshen the format. And the October event has been shortened from two days to one in order to attract day-tripping venture capitalists up from London.

With technology investment becoming trendy again, this is the ideal time for a makeover.