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The decision will come as a blow to tens of thousands of small businesses who had hoped that the recent victory in the Court of Appeal had clarified the situation and shown that the Revenue was wrong in its approach.
Section 660 - the so-called married couple's business tax - has been a thorn in the side of family run businesses for a number of years as the Revenue tried to establish it was correct to interpret Section 660 settlements legislation in a way which allowed them to tax dividends paid to one party in a business as if it was the income of the other.
In real terms, this means that husbands and wives in business together could have tax bills of tens of thousands of pounds.
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Annoucing its decision to appeal, HMRC said: "The settlements legislation (Part 5, Chapter 5, of the Income Tax (Trading and Other Income) Act 2005) is a long standing piece of anti-avoidance legislation designed to prevent the avoidance of tax by, for example, a higher rate taxpayer transferring their income to someone liable at a lower rate. The legislation applies in a wide range of circumstances, including income from small companies and partnerships but it does not apply to income from those companies and partnerships that have normal commercial arrangements."
'Profoundly disappointment
Geoff and Diana Jones with PCG's Simon Juden (centre) |
The PCG has expressed its disappointment at the decision to seek leave to appeal. PCG chairman Simon Juden said: “Geoff and Diana Jones set up their family business in the normal, routine way, as recommended not only by their accountant but also, until very recently, by the Government.
"The unanimous verdict of three of the most senior judges in the land was that, given that the Joneses shared the burdens and hard work of running their business, they were both entitled to share in the reward. This is consistent with the clear intention of Norman Lamont when introducing the independent taxation of spouses, as well as normal practice in the divorce courts.
“Appealing to the House of Lords will exacerbate and prolong the uncertainty caused by HMRC’s initial attempt to move the goalposts by changing their interpretation of 1930s legislation and announcing that they were doing so only after the fact.
"If the Government wishes to extend the scope of the settlements legislation to include these normal family businesses, the honest way to proceed would be - as the judges in this case stated - to legislate openly and clearly.
"We are profoundly disappointed that HMRC has chosen to expose hundreds of thousands of businesses to yet more uncertainty, especially with regard to their self assessment positions, rather than accept the common sense verdict delivered in this case.”
James Kessler QC, the leading tax barrister who has helped PCG fund the case, believes that the Revenue argument in the Arctic case is not only wrong in law but also very unfair to small family businesses.
He said: “They are asking people to value the contribution of their spouse. That is an almost impossible exercise and will vary from year to year, depending on individual circumstances. As a tax lawyer, I want to see the tax system operated in a way that is right in law, and fair and workable in practice. PCG and the Joneses have my full support.”
Further advice from HMRC
HMRC have issued further advice to taxpayers on how to file SA returns, and what to include, in light of the Court of Appeal’s decision. (See Arctic: Revenue issues further advice - Shout99, January 2006).
Section 660 information
For further information about Section 660 and the Arctic case, see Shout99's free news and information resource.
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Susie Hughes © Shout99.com 2006
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