HMRC loses husband-and-wife settlements case

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The First-Tier tribunal found in favour of a couple who faced tax assessments of nearly £20,000 on dividends that HMRC claimed were paid as part of a settlement under s660a of the Income and Corporation Taxes Act 1988.

In a decision published this month, tribunal judge Barbara Mosedale concluded that an arrangement under which David Patmore paid his wife dividends on non-voting B shares in their company did not fulfil the criteria for an s660a settlement.

In the late 1990s Mr and Mrs Patmore paid £320,000 to buy the small manufacturing company for which Mr Patmore worked. The first instalment of £100,000 was funded by a second mortgage the couple took out on their house.

Following the advice of their accountant, RJ McMorran, the company's shares were reorganised into two classes of shares, with Mrs Patmore owning 2% of the A shares and 10% of the non-voting B shares, on which dividends were paid between 1999-2003. The dividends were immediately credited to Mr Patmore’s loan account to set against the outstanding purchase payments for the company. HMRC argued that under this arrangement, the B share dividends should be taxed on Mr Patmore as a settlor.

When looking at "the broad and realistic view" of the case, the judge ruled that this was not the case.

A spokesman for HMRC said the department is considering the judgment carefully before deciding on any further course of action.

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17th Aug 2010 12:16

How helpful is this case?

My reading of this case is that it turned wholly on the facts relating to the funding of the share purchase.

It could work against the taxpayer in a different set of circumstances.

Overall it doesn't take the issue of the Settlements legistlation forward and just highlights the importance of putting the case before the First Tier Tribunal properly to get the facts decided clearly.  It will be interesting to see if HMRC appeal this.

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By pjb123
18th Aug 2010 11:25

HMRC v Partmore

Did Mrs Partmore own 100% rather than 10% if the B shares?

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Sorry if article didn't make it clear...

Mrs Patmore owned 2 of the 100 A shares (2%) and 10% of the B shares, when in the judge's opinion her share of the equity was 50%.

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18th Aug 2010 11:38


why didnt the accountants just give them 50/50 ordinary shares



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18th Aug 2010 11:45

10% but only 10% issued

I think from a quick look at the decision that she only owned 10% of the B shares but the other 90% were not actually issued so in effect she reeceived 100% of and B dividend.


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18th Aug 2010 12:03

HMRC motivation?

Just like Arctic Systems, it looks like HMRC has picked a case it was almost certain to lose in the end. Not that it's any comfort to the years of suffering inflicted upon the poor taxpayers at the time.

There must be many other cases HMRC could choose (assuming their husband & wife assetless IT contractor model was realistic) which would fall over much more easily.

Is is a vainglorious belief that if they win a difficult one, all the easy ones will fold like a house of cards, or are they just very bad a picking their fights?



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18th Aug 2010 12:19

HMRC V Patmore

  A victory for common sense.  It is time that HMRC stopped wasting public money pursuing husband and wife companies where, due to the underlying commercial  realities of such companies, both the husband and wife take real financial risks, especially to their home.

The traditional type of set up represents  a large proportion of the small business sector which underpins this country.

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The view from

Our friends at have obviously taken an interest in the Patmore case, but since it involves a somewhat esoteric arrangement, it doesn't have quite the same fascination for them as a case like Arctic Systems.

Paul Spindler, technology partner at Kingston Smith LLP, commented that the case emphasised "that individuals who would like to split their income and take advantage of the exemptions [to s660A] must ensure that they have taken professional advice before creating new shares or altering the rights of existing shares".

Taxpayers with similarly structured affairs should also be aware that the law on settlements could be about to change, warned Kate Cottrell of Bauer & Cottrell. "With the recent creation of the new Office of Tax Simplification, Section 660 could now be back in the spotlight as part of the Small Business Tax Simplification Review," she said. "Contractors who have entered into such arrangements should remain vigilant."

However for Roger Sinclair, of Egos, the most interesting inference from the case was that "HMRC undoubtedly threw a lot of resources at it, and ended up substantially losing."

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18th Aug 2010 13:52

HMRC V Patmore

It is alarming if, in fact, "HMRC threw a lot of resources" at a first tier tribunal case.

That is not how they are supposed to be handled.




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18th Aug 2010 14:12

a close squeak i feel?



i have done split cap cos. for aeons, because it avoids all the dividend waiver twaddle thrust on us by sly lawyers/HMRC, BUT i always give the (opressed) partner VOTING shares, but sep. class, and usually 10-20%.

i think the absence of votes made this case tissue-thin, but lack of facts/reality never slowed down a good lawyer greased with large amounts of dough.


PS.  Allegedly £20k of tax was at stake (a very small cruise missile) BUT how did they manage to fight this case without spending the gdp of Switzerland on legal fees thereby making it all pointless?

I'd love to fight loads of cases but no money to gamble.....The recent case of Novak Brajkovic of Novasoft Ltd highlighted that he started fighting all outraged at HMRC having temerity to go for a tax bill (using Qdos), but rapidly realized the costs were shooting towards the o/s tax bill, and therefore making the whole exercise futile, so he was forced to stand b4 the beak himself and plead his case.





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18th Aug 2010 14:30

it's NOT "simple" -Tom 7000 on Wed




he doesn't trust his wife "to have and to hold...until death us do part" - so come the massive d i v o r c e he didn't want to lose 50% of his hard-earned business to 'the old trout' - i suspect.

Forgetting of course that propelled by a lawyer, facts would not come in the way of a massive cheque based on 50% of his co. etc...



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18th Aug 2010 16:06

Nasty greasy lawyer laden with dough

Might have found the winning constructive trust argument which was nearly missed but for the Tribunal Chairman. Arrogant accountants who pontificate about law because they have read Janet and John's English law should remember that negligence begins where professional competence ends and knowing when the point has been reached is vital. Tax is the practice of law notwithstanding its greater affinity with numbers than most other branches of the law. All good accountant tax advisers I have known have been good lawyers too despite not having a formal qualification.

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By aburt01
19th Aug 2010 09:41

lawyers make good accountants

...this is why the whole tax system needs a massive over-haul, to ensure simplification.

Small company owner(s) should be able to arrange tax affairs without having to spend a fortune deciding the appropriate split of share ownership.

This situation is complete madness!!!

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24th Aug 2010 17:51


Only one company, so not "the companies shares" but "the company's shares"

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24th Aug 2010 18:02

Tories' fairness on joint income

The Conservatives, pre-election, said they were for increased "fairness".

In this case, if they had gone for joint couple's tax returns (like US and IOM as I understand it), the s660a stuff would have been rendered pointless.

As things are, asymmetric earning couples pay widely differing overall tax from those couples earning the same amount.

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24th Aug 2010 21:55

H & W shareholders

It is time that HMRC stopped wasting public money pursuing husband and wife companies

Haven't the Tories just taken on a bloke with his wife owning most of the shares, think she lives abroad somewhere, doesn't pay a lot of tax ...


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Typo fixed

Thanks for pointing that out Mike - I'm mortified to have got that wrong... The excitement of the decision must have got the better of me.

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06th Dec 2013 21:59

Liquidator chasing director


I wonder if anyone has experience of a liquidator pursuing the Director who allegedly has either paid themselves too much or indeed if his wife who was also a director & who worked part time generally carrying out admin duties.

This has been on-going for over 12 months & now the liquidator has confirmed legal action against my wife & I, they do not accept our answers/explanations which have been backed up from the company accountant.

Having taken professional/legal advice I am told that liquidators can take on cases which they believe have a chance of recovering cash for the creditors [that is of course after they recover their fees] my opinion is that they are 'bottom feeders'.

Is it a case of see them in court & let the DJ decide?



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