Arctic Systems S660 High Court hearing begins today

The High Court hearing of the landmark S660 case will begin today at 10.30 in Court 59 in front of Mr Justice Park. The hearing is expected to last three days.

The case concerns Geoff and Diana Jones, of West Sussex company Arctic Systems. The couple are listed equal shareholders but Mr Jones is identified as generating the most income while his wife tended to the administrative side of the business thereby making a saving on tax, a way of working familiar to many small businesses, with dividends paid according to shareholding.

The Revenue then chose to apply a new interpretation to Section 660, claiming that the dividends paid to Mrs Jones should really belong to Mr Jones – and therefore taxed at a higher rate. The result was a tax bill of £42,000.

Section 660A, known as the "settlements legislation", has been around since the 1930s. It is wide-ranging and deals with situations where income arises from something, such as shares, given by one person to another. This is called a "settlement," and the aim of the legislation is to stop people settling their income on another person who pays tax at a lower rate.

Arctic Systems lost their case at the Special Commissioners when the two Commissioners could not agree and one used her casting vote in favour of the Inland Revenue. More details on the judgement can be found here

At the time, Simon Juden, Chairman of the PCG, commented: "Two highly expert Special Commissioners involved could not agree on their assessment of the various tests. What hope does this give the average couple running a small family business in trying to assess and budget for their tax liabilities?"

The Professional Contractors Group (PCG) is funding the case.

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