UK Small Business Slams HMRC's 'Craven' Pursuit Of Family Business

by Jason Gorringe, Tax-News.com, London

13 June 2007

The Federation of Small Businesses (FSB) has attacked the conduct of HM Revenue & Customs (HMRC) in a family tax case that was heard in the House of Lords last week.

The UK’s biggest business organisation criticised HMRC’s decision to ignore a refusal by the Court of Appeal to allow a petition to the House of Lords in the so-called Arctic Systems case.

The case centres on a family-run business, Arctic Systems Ltd, which used dividends from the business to remunerate Geoff and Diana Jones, the shareholders. Despite a decisive ruling by the Court of Appeal in favour of the taxpayer, HMRC is continuing its campaign to extract money from the Joneses.

Bill Knox, FSB Taxation Chairman, said:

“HMRC’s conduct towards a family-run business in this case is utterly shameful. They refused to respect the decision of the Court of Appeal, which delivered a decisive and authoritative ruling in favour of the taxpayer.

“Hounding hardworking small business owners in this way sullies the good name of HMRC and will not instill confidence in the UK small business community as a whole, which rightly expects to be treated proportionately and fairly by the tax authorities.

“The craven decision to pursue the case further will be at the expense of the taxpayer and will result in a damaging loss of confidence in HMRC’s record with small businesses.”

The couple, who have been supported throughout by the Professional Contractors Group, a body set up specifically to help the UK freelance community contest unfair tax claims, have been fighting HMRC after receiving a back-dated bill for GBP42,000 in tax which, according to the then Inland Revenue, was owed under the settlements legislation.

They had established the jointly-owned company, Arctic Systems Limited, after seeking advice from accountants. Each purchased one share in the company, drew a salary and distributed the profits equally as dividends.

HMRC has argued that dividends paid to Mrs Jones should be treated as Mr Jones' income for tax purposes, causing uncertainty for hundreds of thousands of small businesses with a similar set-up.

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