Welcome to this monthly Accounting News bulletin from DG Accountancy Services (http://www.businessbods.co.uk) bringing Small Business' news and information from the business world, as it happens!
Thursday, 2 August 2007
The landmark tax case involving the family-run IT business Arctic Systems has finally reached a conclusion, with the House of Lords ruling in favour of Geoff and Diana Jones and against HMRC. The case of Jones v Garnett (commonly called “Arctic Systems”), which has been running for several years, has centred on the issue of whether Mr Jones's salary was set at an artificially low level, and whether the dividends received by Mrs Jones should have been treated for income tax purposes as Mr Jones's. There have been many twists and turns, as HMRC, having previously lost a unanimous ruling in the Court of Appeal, appealed to the law lords to tax Geoff Jones on dividends paid to his wife. HMRC had used an old piece of legislation, Section 660, to argue that the dividends paid to one partner were really earned and belonged to the major fee earning partner, a higher rate tax payer. It is a business structure used by thousands of married couples who jointly own a small business. The uncertainty over the case has left thousands of businesses concerned that they too could face large tax demands. In their judgment, read out to a packed chamber this morning, the Lords ruled that:
- The Joneses were creating an arrangement in the nature of a settlement when they subscribed for one share each, and set up their company Arctic Systems Ltd
- However, the exemption for gifts between spouses also applied and dividends paid to Mrs Jones were therefore not income arising under a settlement.
No further appeals are possible under UK law, and it seems that HMRC will now have to review its guidance on settlements and on outright gifts. The opinions of the law lords can be read on the Parliament website: http://www.publications.parliament.uk/pa/ld200607/ldjudgmt/jd070725/jones%20-1.htm We can advise you on all your tax planning needs. Contact us for further assistance - we will be pleased to help you.
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