HMRC: Arctic Systems is not a test case

The four-year 'husband and wife' legal battle to determine whether Arctic Systems Limited owes tax retrospectively under the Settlements legislation is not a "test case."

Issuing the verdict yesterday, HM Revenue & Customs (HMRC) said the House of Lords is considering s660A only as it applies to the IT consultancy, and "not how it applies more generally."

This is despite warnings that a decision by the Lords to overturn the Appeal Court ruling could land 250,000 small firms, with similar tax affairs to the consultancy, with retrospective demands of up to £40,000.

Some micro business advisors define a 'test case' as a legal action which has an outcome that is likely to set a precedent or test the constitutionality of the statute.

Tax experts distinguish 'test cases' as cases which are funded by the state because there is a point at issue between taxpayer and tax authority.

Chris Bryce, director of the Professional Contractors Group, believes Revenue & Customs won't 'label' Arctic Systems V HMRC as a 'test case' because "they don't want to pay for it."

He said: "The Revenue is saying Jones V Garnett is not a test case but its outcome will be significant, and would set a precedent which would make it hard to see how it's not a test case."

David Ramsden, founder of the PCG, added: "I think it is a landmark case. The appeal to the Judicial Committee of the House of Lords is a request to them to define a point of law."

And Roger Sinclair, a consultant at Egos Ltd, a legal advisory for IT contractors, said: "Yes it is a test case – it will clarify the application of s660A, and the misleading guidance that has hitherto been issued and relied on by the Inland Revenue."

But asked to give its interpretation of the 'Arctic case,' a spokesman for Revenue & Customs said: "Jones v Garnett is not a "test case".

"The House of Lords is considering the legislation as it applies to the facts of this case, not how it applies more generally."

He added: "However, once the case is settled it will provide useful guidance on how the legislation applies."

Tax officials also said that the Jones's case was not sufficient cause to review the types of cases which deserve state support.

Court wrangling between Arctic Systems and Revenue & Customs finally ended this week, on the second day of a hearing that was scheduled to last three days.

The PCG reported QCs for HMRC put their case on Tuesday and counsel for Geoff and Diana Jones, owners of Arctic Systems, began towards the end of the day.

The hearing came to a close just before one o'clock on Wednesday afternoon. The House of Lords will now deliberate and reach a judgment within the next six weeks.

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