August 2007

Arctic Systems – The Verdict

The long running saga of Geoff and Diana Jones and their company, Arctic Systems Limited, has recently been back to the courts for the final time to the House of Lords.

Just in case you need a reminder, the case concerned a company owned by a husband and wife, Geoff and Diana Jones, and hinged on whether dividends paid by the company to Mrs Jones (who was not a higher rate taxpayer) should be shown on her husband self assessment return and taxed as his income at a higher rate of tax. You may recall that the case went to the Court of Appeal where the taxpayer won.

The 33 page final judgment delivered a resounding victory for Mr and Mrs Jones with all five of the judges unanimously agreeing that HMRC’s appeal against the previous judgment should be dismissed. We have included a link to the full judgment at the bottom of this article.

Anne Redston, who is the Chartered Institute of Tax (CIOT) spokesperson, said:

“The CIOT is delighted that, after such a long battle, the House of Lords has confirmed that HM Revenue & Customs (HMRC) were wrong to attack husband and wife businesses in this manner. The CIOT has always considered that HMRC were wrong to use this obscure legislation against small businesses like the Jones’s, and the House of Lords has now agreed with us.”

If the case had gone in favour of HMRC then this may have resulted in many husband and wife businesses being liable to additional tax charges going back up to six years.

Internet Links:

PCG article and House of Lords judgment