Arctic Systems Win Their Appeal!!

WHA

Just heard that Arctic Systems have won their appeal. Excellent result for husband/wife limited companies. It's too early for any detailed information about the ruling, which has just been announced this morning, so expect more in-depth analysis in the very near future.

If you don't know what has been going on, the Inland Revenue have been trying to argue that dividends paid to a shareholder who was not the main "wage earner" for the company were effectively invalid and had to be taxed on the main "wage earner" instead.

I'm sure some people would argue this is a "moral" matter and I don't want to go down the argument as to whether this should or shouldn't be allowed, but the point was the massive uncertainty - Parliament never considered this matter, the legislation did not relate directly to this matter - the Inland Revenue have merely re-interpreted the law and started to apply it haphazardly, and potentially up to six years in arrears, creating enormous tax liabilities. Those potentially affected had no idea they could be caught - this was a massive "stealth tax" that had been introduced by the back door with no advance publicity and no advance warning which is why it had to be challenged.

Of course, no-one expects the Inland Revenue, or the Government to walk away and forget about it. But hopefully it will send a clear signal to them to do things properly in future. If there is a perception that husband/wife companies are not paying the "right" amount of tax, then what is needed is proper consultation, proper understanding of small business, and proper introduction of legislation to prevent any proven and unjustified tax-avoidance taking place in the future. What shouldn't (and hasn't) been allowed to happen was policy making "on the hoof". It's about time the government and senior civil servants realised that they don't have complete power and control - we are still a democracy and the long established procedures for ensuring the "checks and balances" are still in place.

Let's hope that Gordon Brown, his thick side-kick, Dim Prawn, and the senior HMRC officials take notice and learn from their mistakes (though I'm not holding my breath).

koru

A pretty good summary, WHA.

I would add that the judges actually gave the government a good slapping in their judgment. To the casual reader of the decision, the disapproval might not be apparent, but by the standards of legal judgments the judges went out of their way to express surprise at the interpretation that had been taken.

johnllew

At the last moment, HMRC have requested leave to appeal from the House of Lords. It's not over yet.

WHA

johnllew wrote: »

At the last moment, HMRC have requested leave to appeal from the House of Lords. It's not over yet.

It is now!

House of Lords ruled yesterday and Arctic Systems have won, as have all the other businesses who adopted this long standing and perfectly legal policy (as vindicated by the H.O.L.)

HMRC have egg on their faces for their disgraceful attempt at re-writing their own history by suddenly changing the goalposts and attempting to go back six years, potentially crippling (if not bankrupting) many thousands of small businesses. What is even more disgraceful is the way that they forced people to adopt their (wrong) instructions that had no doubt forced many thousands to pay more tax than the law required. If anyone reading this did follow HMRC guidance and put the non-fee-earning spouses dividends on their own tax return and therefore paid higher rate tax un-necessarily, then they should amend their tax returns and re-submit if still within the time limits, and if outside the time limits, submit an appeal, in order to claim a refund of the tax wrongly paid.

Obviously, HMRC won't take this lying down, but now they have to change the law the proper way, i.e. through Parliament with the necessary consultation, scrutiny and Parliamentary approval, rather than trying to make new laws on the back of a fag packet. Whilst any new laws may well be unwelcome, there may, once again, be certainty as to what is and what isn't allowed in terms of this type of tax planning strategy, and any changes will hopefully be well documented, well announced, etc., and most importantly, not retrospective.

Remember, it is supposed to be "self assessment", yet senior judges have been confused by the legislation and guidance and have issued conflicting judgements - if such learned people can't agree, what hope is there for the average business person? "self assessment needn't be taxing" - you must be joking!