UK’s Small Firms Dealt ‘Bitter Blow’ By Section 660 Appeal Ruling

by Jason Gorringe, Tax-News.com, London

28 April 2005

In what has been described as a "bitter blow" to hundreds of thousands of small firms in the UK, the High Court yesterday rejected an appeal against the Inland Revenue's interpretation of Section 660 legislation, brought by the owners of a small IT firm.

Geoff and Diana Jones, owners of Arctic Systems, were contesting a £42,000 bill for back tax resulting from the Inland Revenue’s interpretation of existing legislation, which stops husband and wife-run firms from reducing their tax bill by allocating income to the less active partner, who pays tax at a lower rate.

Commenting on Mr Justice Park's ruling, Simon Juden, chairman of the Professional Contractors Association, which has supported the Joneses' long legal fight, remarked that:

“This is a bitter blow, not just to Geoff and Diana Jones, who’ve had to endure years of uncertainty, but also to the hundreds of thousands of small family businesses who’ve shared the risk and the hard work of running a business, expecting to share in the rewards. Now many of them will frankly be wondering whether it’s worth it."

“We will carefully consider Mr Justice Park’s ruling before deciding on our next course of action. Meanwhile, PCG will continue to campaign for clarity, consistency and common sense in regulation and legislation. As the not-for-profit trade association representing the freelance community in the UK, PCG will seek to furnish its members with clear guidance about their likely risk following this judgment, and what actions they should take.”

Meanwhile, Geoff Jones stated:

“Diana and I are extremely disappointed with the outcome of this second hearing, not just for us, but also for all the other family businesses that contribute so much to the economy and could be affected by this unfair legislation."

"The ongoing case has been very stressful, and we’re very glad that we had financial and moral support from PCG and its members. I’m sure that many people just give up when faced with an Inland Revenue demand, however unfair or incorrect it may be.

"I sincerely hope that this particular piece of legislation will continue to be challenged, in the interests of fairness for family businesses.”

The case was presented on the Joneses’ behalf by Malcolm Gammie QC, an eminent tax expert, assisted by Dave Smith of Accountax Consulting, who is a Fellow of the Chartered Institute of Taxation. Mr Smith observed that:

“This judgment is not good news for thousands of small family businesses who have acted in accordance with recommendations from their accountants or business advisers. We will be working with PCG to provide guidance for those who are concerned about how they might be affected by this ruling.”

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