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By | John Oates 16th January 2006 14:27

Tax man asks to appeal Arctic decision

Mom and Pop IT biz goes back to court over tax

Her Majesty's Revenue and Customs is asking the House of Lords for permission to appeal a decision which could mean lower tax bills for thousands of companies. The decision will affect people who run their own businesses and are mainly paid in dividends rather than salary.

HMRC took Arctic Systems to court because it was unhappy with how it paid tax. Arctic Systems turned over about £100,000 a year. Geoff Jones paid himself a salary of £7,000 a year while his wife was paid £4,000 a year for admin help. Once other expenses were paid the couple split the rest of the cash as a share dividend so paying less in national insurance and other taxes.

The Revenue believes that Diana Jones should pay tax at the same, higher, rate as her husband.

The Professional Contractors Group expressed dismay at the decision. 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."

Juden added: "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."

The PCG said the Revenue should legislate if it wanted to change the rules so dramatically.

The decision is also problematic for couples in similar situations because the deadline for self-assessment is just two weeks away. Radio 4's Moneybox programme recommended people follow the Court of Appeal ruling but make a note on their tax returns that they have done so.

The Jones case is a test case - they won a victory in December last year. More on the Beeb here.®

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