Revenue Drops Backdated Tax Claim In Section 660 Case

by Robert Lee, Tax-News.com, London

16 June 2004

The landmark ‘husband and wife’ tax case got off to a surprising start in London on Monday when it emerged that the Inland Revenue had at the last minute dropped its retrospective claim for taxes from Arctic Systems.

This decision means that the £42,000 tax demand on Geoff and Diana Jones’s IT firm which took into account taxes owed over a six year period will now be significantly reduced.

However, it is not clear whether this will be extended to the thousands of other small firms anxiously awaiting the outcome of the case, as the Revenue stands to collects hundreds of millions in tax if the decision goes in the department’s favour.

The Revenue has apparently offered no explanation for the move, and has declined to comment on the matter until after the case has been decided.

At issue is the way in which dividend income in small firms is distributed to the ‘less active’ partner in the firm in order to achieve a tax saving. The Jones’s local tax inspector interpreted this method as tax avoidance by citing legislation dating back to 1936.

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