UK Tax Bodies Release Guidance Note On Issues Raised In Arctic Systems Case

by Jason Gorringe, Tax-News.com, London

19 September 2005

The UK's six main tax representative bodies (The Institute of Chartered Accountants in England and Wales, The Chartered Institute of Taxation, the Association of Chartered Certified Accountants, the Institute of Chartered Accountants of Scotland, the Association of Taxation Technicians and the Association of Accounting Technicians) have issued an updated guidance note to help tax advisers and their clients with their tax returns for the year ended 5 April 2005.

This is to assist with self assessment in the light of the decision in the Arctic Systems Limited case (Jones v Garnett) which is still under appeal.

The landmark Section 660, or 'husband and wife' tax case is set to be heard in the Court of Appeal between 17 and 18 January 2006, although, controversially, the outcome of the case will not known until after the self assessment tax deadline on January 31.

The case in question centres on Geoff and Diana Jones, who are contesting a £42,000 tax bill relating to their company, Arctic Systems.

According to HM Customs and Revenue’s interpretation of the settlements legislation, the couple had sought to illegally reduce their tax bill by allocating income to the less active partner, who pays tax at a lower rate. It is said that about £1 billion in annual tax revenues depends on the outcome of the case.

Francesca Lagerberg, Chairman of the Tax Faculty of the ICAEW noted last week that:

“Many small businesses, particularly those involving just a husband and wife, may still be unsure how to complete accurately their tax returns in relation to the settlements legislation. The recent High Court case involving Arctic Systems Limited has left many questions unanswered but the appeal may not have been heard in time for people to self assess for the year ended 5 April 2005, where the filing deadline is by 31 January 2006. The guidance note issued today by all the main tax representative bodies is intended to help with this dilemma.”

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