Arctic Systems - decision could be wrong

The decision in the recent Arctic Systems 'husband and wife' tax case may have been incorrect - and there may have been no decision at all, according to leading accountants Ernst & Young.

Incorrect

Anne Redston, tax partner and acknowledged expert in freelancer tax issues, said: "The Arctic Systems case was deadlocked - of the two Special Commissioners, Judith Powell found for the taxpayer and Dr Brice for the Revenue. Dr Brice was the presiding Commissioner, and she had a casting vote. She cast this vote for the Revenue, and the case was thus published as a Revenue victory.

"However, we believe this to be incorrect. The casting vote does not simply give one Commissioner two votes, so her opinion automatically carries the day. If this were the case, there would never be any point in having two Commissioners, as one could always overrule the other.

"Instead, the exercise of the casting vote should be considered separately from the case itself, and the reasons for the exercise of the casting vote must be given. Previous cases have laid down a precedent here. If the case was a claim for a tax relief, then the casting vote was exercised for the Revenue. If the case is an appeal by the taxpayer against a Revenue assessment, as with Arctic Systems, then the victory goes to the taxpayer.

"Dr Brice has not followed this precedent, and has given no reasons for her separate exercise of the casting vote. It looks as if she thought she simply had twice as many votes as her fellow Commissioner, which we believe is not correct."

Ernst & Young and the Professional Contractors Group (PCG) have taken Counsel's opinion on this point, and have been advised that:

• there may have been no valid decision in this case because no reasons have been given; and
  
• that if a decision has been given, it is incorrect. Mr and Mrs Jones should have won their case on the casting vote. Instead they are now faced with a lengthy and expensive appeal process.

Revenue refuse to fund appeal

Anne Redston said that she had approached the Revenue to ask, on behalf of the Jones, if they would agree to fund the appeal. In the past the Revenue has agreed to this, where the issue affects a large number of taxpayers and is a test case.

Despite agreeing that this is a test case, and also having been made aware of the problem with the casting vote, the Revenue has refused to assist the Jones. They have said that they do not believe that the case is "of significant interest to taxpayers as a whole," and that this is not "a point of law which needs clarification."

Anne said: "Combined with the casting vote issue, this refusal rubs salt into an already raw wound.

"I am astonished that the Revenue considers that this case is not of significant interest, and that Section 660A is not in need of clarification. The use of this obscure legislation against husband and wife businesses may affect hundreds of thousands of taxpayers, and the test case has been taken because most professionals disagree with the Revenue's interpretation of the law."