Business Newsletters - Spring 2007

An Arctic storm?

Some of you may remember the name of 'Arctic Systems' and the company's owners, Mr and Mrs Jones. Over the past couple of years, HMRC have been seeking to make an example of them and set a precedent which can be applied to others.

The case reads a bit like a soap opera. HMRC are concerned that individuals are incorporating their businesses and using dividends, rather than salaries, to extract profit. Combined with low rates of corporation tax, this creates substantial tax and national insurance savings. The savings can be increased by giving shares to a ‘non-working spouse’, which allows further tax savings by using that spouse’s personal allowance and lower rates of tax.

In April 2003 HMRC issued new guidance which attempted to stop this type of tax planning by using the so-called ‘settlements’ legislation, which dates back to the 1930s. The Arctic Systems case soon followed.

The taxpayers originally lost their case in front of the Special Commissioners but appealed against that decision and lost again in the High Court….but then won in the Court of Appeal!

It has now been announced that the case will be heard before the House of Lords in June 2007. Watch this space for the decision and its implications.

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