Arctic: HMRC issues guidance
HM Revenue and Customs (HMRC) has issued further guidance relating to ongoing cases and tax returns in the light of the Government's defeat on the Section 660 issue - married couples business tax - in the House of Lords.
On July 25 2007 the House of Lords ruled in favour of husband and wife business, Arctic Systems. HMRC had previously lost this case in the Court of Appeal and as a result had appealed to the House of Lords.
The case concerned dividend payments made by their company to Mrs Jones through which Mr Jones provided IT consultancy services. HMRC's view was that Section 660, 'the settlements legislation', deemed the dividends received by his wife to be Mr Jones' for income tax purposes. The House of Lords disagreed.
Guidance
In its new guidance, HMRC reminds people of the Ministerial Statement made by Angela Eagle, Exchequer Secretary to the Treasury, the day after the judgement. She referred to the Government's intention to bring forward new legislation to deal with what she described as 'income splitting'.
The guidance then outlined how cases will now be dealt with following the House of Lords decision and what tax payers should do when filing returns. It said:
Open cases
We have been keeping open some similar cases to that in Jones v Garnett whilst we waited for the decision in the House of Lords. We will now review all these cases and will seek to settle them in line with the Jones v Garnett decision if appropriate. Not every case will be exactly the same as Jones v Garnett. We will consider each case on the basis of its individual facts, but unless there are any additional factors which might cause us to take a different view, we expect that most cases where the settled property comprises:
- ordinary shares in a company, or
- an ordinary (ie unlimited) interest in a partnership,
Returns for 2005/2006
Self Assessment returns for the tax year 2005/2006 had to be delivered to HMRC by 31 January 2007. We explained in guidance at that time, that these 2005/2006 returns should be completed in line with the Court of Appeal decision, which was in favour of Mr Jones, and suggested that the blank space in the return form could be used by the taxpayer to say that they had done this. Now that the House of Lords has also ruled in favour of Mr Jones, these returns will not need to be amended.
Returns for 2006/2007
Self Assessment returns for the tax year 2006/2007 have to be delivered to HMRC by 31 January 2008. These returns should be completed in line with the House of Lords decision, which was in favour of Mr Jones. We are preparing new detailed guidance on the settlements legislation in line with the decision and will issue it this autumn in good time for people to be able to prepare the 2006/2007 returns.