Section 660 - The Result
Arctic Systems finally wins the S660 case at the House of Lords
The House of Lords (HOL) has today ruled in favour of Geoff and Diana Jones of Arctic Systems Ltd, and thus removed a tax threat that has been hanging over thousands of family run businesses for the past three years.
The Law Lords held that the arrangement entered into by the Jones’ did constitute a statutory settlement, but the let-out for outright gifts between spouses/civil partners was available to them. They added: “But so long as the shares from which that income arises are ordinary shares, and not shares carrying contractual rights which are restricted wholly or substantially to a right to income, the settlement will fall within the exception created by section 660A.” The result is that Mrs Jones, and not Mr Jones, was assessable on the dividends she received from Arctic Systems Ltd, even though most of the profit was because of Mr Jones’s efforts.
With support from the Professional Contractors Group (PCG), Geoff and Diana succeeded in defeating the Revenue from interpreting the now infamous S660 tax law retrospectively. The Lords unanimously agreed with the Court of Appeal’s (COA) decision and rejected arguments by HMRC that attacked companies that are jointly owned by one revenue-earning partner and one non-earning partner.
PCG chairman David Ramsden said: “This is an enormous relief for family businesses throughout the UK, who had been facing a tax rise from a previously obscure bit of law. We will now be working to ensure that HMRC respects this decision and does not attempt to penalise family businesses unfairly.”
Geoff Jones said: “Diana and I are delighted that the Law Lords have vindicated our position, and confirmed that we have done nothing wrong. This has been a terrible ordeal for us, which looked like it could cost us our home at one point. We’re relieved it’s all over, but I am still extremely angry that the Government tried to pull this stunt in the first place.”
It has been universally echoed that the approach the Revenue took to extract further taxes from the Jones’ was wholly unacceptable, unfair and utterly shameful, and so this decision by the Law Lords was welcomed by all. As was highlighted by Anne Redston, spokesperson for the Chartered Institute of Taxation, who said “The CIOT is delighted that, after such a long battle, the House of Lords has confirmed that HM Revenue & Customs were wrong to attack husband and wife businesses in this manner. The CIOT has always considered that HMRC were wrong to use this obscure legislation against small businesses like the Jones’s, and the House of Lords has now agreed with us.”
HM Revenue & Customs have now been defeated twice in the two highest courts of the land, COA and HOL, it remains to be seen what the Revenue’s next approach will be towards freelance contractors. Will they now let S660 rest? Could they apply to have the legislation amended so that the rules in S660 will apply from a set date in the future, and not retrospectively? This would at least give advance warning of their intentions, or maybe we will see the re-emergence of the IR35 legislation, which seems to have taken a back seat to the S660 case for the last few years.
We will of course keep you informed of any new developments, once the Revenue has had time to digest this resounding defeat.
To read the full judgement in the Jones – v .Garnet (HMRC) case, please click the following link:
http://www.publications.parliament.uk/pa/ld200607/ldjudgmt/jd070725/jones%20-1.htm
