Arctic Systems to appeal S660 ruling

Geoff and Diana Jones, owners of Sussex-based IT firm Arctic Systems, have declared they are to take their landmark Section 660A case against HM Revenue and Customs to the Court of Appeal.

The case is due to be heard in September, when Geoff Jones backed by the Professional Contractors Group will seek to overturn the judgment handed down in April by Mr Justice Park.

This ruling upheld the finding of the Special Commissioner Dr Nuala Brice, who asserted that Diana Jones’s dividends were in fact income arising under an arrangement and that the exemption of S660A should not apply.

After consultation with accountants and donations from the public, the Joneses will now seek to determine whether the Revenue can, as stipulated by Park, retrospectively claim on traditionally accepted tax planning for thousands of husband and wife partnerships.

Both Geoff and Diana Jones have said the appeal has been made possible by the “generous support” of tax barrister James Kessler, QC, who is expected to argue the ruling that Mr Jones, as the main earner, unfairly transferred some of his income in the form of dividends to take advantage of his spouse’s lower tax status.

Announcing the decision to appeal, Simon Juden, PCG chairman, said: "We believe that this judgment undermines the self-assessment tax system by leaving a host of questions unanswered. It could affect hundreds of thousands of small family businesses who've shared the risk and hard work of running a business, expecting to share in the rewards.”

Some accountants initially estimated that up to 200,000 husband and wife firms could be adversely affected by the S660A ruling, but that number has now been reduced, to roughly match the Revenue’s own estimate of 30,000.

"We are campaigning for clarity, consistency and common sense in regulation and legislation," Dr Juden added, “and are pleased to have the generous support of leading tax barrister James Kessler QC, who believes that family businesses are being put in an impossible situation.”

The complex situation has been compounded by Mr Justice Park’s recommendation that to avoid Revenue scrutiny, taxpayers should ensure they pay themselves a “market rate.”

Yet some industry experts have pointed out the difficulty small to mid-sized companies will face when trying to calculate the ‘going rate.’

“There is no such definition in the Taxes Acts [for a market rate],”said Nicola Ross Martin, consultant at Ross Martin Tax Consultancy Ltd.

Speaking before yesterday’s decision by the Joneses, she said: “If this judgement is not appealed, the courts have added to our understanding of the term “bounty” in terms of market value salaries forgone.

“This is quite an issue for owner managers of SMEs, in most small businesses salaries paid are, almost without exception (and the exception is IR35) lower than market rate. Quite how one should calculate a market value salary for an SME owner is something that is going to have to be addressed sooner or later.”


10th June 2005

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