Arctic Systems to go to Lords
HM Revenue & Customs (HMRC) will take its Section 660 battle to the House of Lords later this year.
HMRC has been granted leave to appeal to the Lords to challenge the Court of Appeal decision which ruled in favour of married couples in business in the Arctic Systems test case.
The case, involving Geoff and Diana Jones, has been the focus of small businesses for several years as the final decision could result in large tax bills for tens of thousands of couples in business together.
Arctic Systems were initially challenged by the Revenue for a retrospective tax bill of £42,000 after the Revenue used an old piece of legislation, Section 660, to argue that the couple had 'not paid their fair share of tax' because dividends were paid to Mrs Jones to avoid tax at Mr Jones' higher level.
Mr and Mrs Jones have a jointly owned small IT consultancy with a similar structure to many other husband and wife businesses.
Test case
Arctic Systems lost its case in the Special Commissioners and the High Court, before 'turning the tables' in the Court of Appeal. The Court of Appeal did not grant HMRC automatic right to appeal the decision and consequently it had to seek leave to appeal to the House of Lords which has now been granted.
Mr and Mrs Jones have been supported in their test case by a number of small business organisations and companies including the Professional Contractors Group, the Federation of Small Businesses and JSA accounting services.
PCG chairman Simon Juden said: "We are naturally disappointed that HMRC has chosen to prolong the uncertainty for hundreds of thousands of family businesses, rather than accepting the unanimous and common sense verdict delivered by three of the most senior judges in the land.
"We strongly believe that where a husband and wife share the burdens and hard work of running their business, they are both entitled to share in the reward. This is consistent not only with Norman Lamont's clear intention when he introduced the independent taxation of spouses, but also with standard practice in the divorce courts."
It is expected that it will be several months before the appeal is heard, and that judgment will be handed down towards the end of the year.