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Artic Systems
The
House of Lords has found in favour of Geoff Jones in the landmark tax case
Jones v. Garnett (also knows as “Arctic Systems”). The law lords rejected HM
Revenue and Customs’ appeal to tax Geoff Jones on dividends paid to his
wife, Diana. The judgement marks the dramatic end of a tax case that has
gripped accountants and small business owners for the last four years and
dominated all recent SME tax planning. No further appeals are possible under
UK law.
In their judgment,
handed this morning, the lords ruled that:
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The Jones created an
arrangement in the nature of a settlement when they planned, and
subscribed for one share each, and set up their company Arctic Systems Ltd
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However, the
exemption for gifts between spouses also applied and so dividends paid to
Mrs Jones were therefore not income arising under a settlement.
The Jones were jubilant
after the landmark decision, which was not totally unexpected by HMRC, (the
Court of Appeal had previously and unanimously found in favour of the
taxpayer), but Geoff Jones said that he is "extremely angry" about HMRC's
failed "stunt".
HMRC will now have to
review and totally re-write its guidance on settlements and also review its
guidance on outright gifts. Small business taxation is somewhat topical as
the Muirless Review on the subject expected this Autumn, and there is
speculation as to what view the new chancellor will take on small companies
and their dividend policy.
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No two cases are the
same and there are still some grey areas however it’s important we discuss
the situation with each client this affects.
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