Lords to decide landmark tax case

HM Revenue and Customs has been granted leave to appeal the verdict in the Arctic Systems case, in a move that will prolong uncertainty for taxpayers until late 2006.

Announcing the Lords will hear its appeal, Revenue & Customs said last year's ruling in favour of the taxpayer represents the law as it now stands, but warned that the decision is not "final."

No guidance to the hundreds of thousands of firms which split dividend payment across partners will be issued, until the Lords "finally resolve" the dispute over the controversial settlements legislation (S660).

Taxpayers who have already filed their 2004/05 self-assessment online who fear they may be affected by the ruling cannot use the website to amend their returns, HMRC said.

Instead, they are invited to write to the tax authority, "telling us how the return is to be amended" before the deadline of 31st January 2007.

HMRC also reminded each individual's case is different, and professional advice should be sought as to whether a case is consistent with Jones V Garnett.

The Professional Contractors Group (PCG), which will continue to support the Jones's, expects a several-month wait before the Revenue begins its appeal.

The final verdict from the House of Lords is therefore not anticipated until towards the end of 2006, meaning ongoing ambiguity for husband and wife partnerships and limited companies alike.

"Our thoughts are with Geoff and Diana Jones, who have already spent more than two years going through the courts, and with all the family business owners who welcomed the Court of Appeal ruling in December and thought it would give them certainty," the PCG said in a statement.

Simon Juden, group chairman, is "disappointed" with the Revenue's choice to extend uncertainty for taxpayers, rather than accepting the unanimous and "common sense" verdict from three of the country's most senior judges.

He said the Appeal judges' ruling is consistent not only with Norman Lamont's intention when he introduced independent taxation of spouses, but also with standard practice in divorce courts.

"Where a husband and wife share the burdens and hard work of running their business, they are both entitled to share in the reward," Juden claimed.

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