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Small Businesses Finally Get a Decision in Tax Case
 After
years of court battles, family run
businesses finally have a decision on the
tax case that could have left thousands of
small businesses with huge tax liabilities.
The case between Arctic
Systems Ltd and HM Revenue and Customs (HMRC)
has seemingly gone through practically every
court and appeal available; but the House of
Lords have decided to rule in favour of the
taxpayer. A decision welcomed by the
Federation of Small Businesses (FSB).
The case centres on a family-run business, Arctic Systems Ltd,
which used dividends from the business to
remunerate Geoff and Diana Jones, the
shareholders. Mr and Mrs Jones ran a small
IT company where Mr Jones was the sole
director. He was a higher rate taxpayer. She
paid tax at a lower rate. They both took out
a small salary as well as a dividend, which
was split equally between them.
Despite a decisive ruling by the Court of Appeal in favour of the
taxpayer and a refusal to grant leave to
appeal to the House of Lords, HMRC used
taxpayers’ money to continue its campaign in
the Lords to extract money from the Jones’.
Bill Knox, FSB Taxation Chairman, said:
“HMRC’s conduct towards a family-run
business in this case has been utterly
shameful. Hounding hardworking small
business owners in this way sullies the good
name of HMRC and will not instil confidence
in the UK small business community as a
whole, which rightly expects to be treated
proportionately and fairly by the tax
authorities.
“The family tax arrangement that the Jones’
had in place has been around for years and
for HMRC to suddenly decide to clamp down
without warning was totally unjustified.
“We are very pleased with the House of
Lords’ decision, which totally vindicates
the Jones’ position. Hopefully HMRC will now
realise this type of aggression towards
honest taxpayers is unacceptable.”
This decision means
that family run small businesses should now
be able to take their salaries and dividends
in this way without risking a clampdown from
HMRC; although if you plan to use this type
of payment, you should discuss the situation
with your accountant to make sure it is
suitable for your business.
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