Victory for directors of small company in House of Lords tax case

26 07 2007 United Kingdom

After a lengthy battle with HM Revenue and Customs, Geoff and Diana Jones have won their landmark case over the ‘Married Couples Business Tax’

Geoff and Diana Jones own Arctic Systems, a small IT company based in Sussex. For over three years they have been fighting against a Tax Inspector’s decision that Mr Jones should pay income tax on his wife’s dividends, as though they were his personal income.

Initially he lost his appeal in a highly controversial ruling by the Inland Revenue Special Commissioners and then took his case successfully to the High Court.

But the Inland Revenue refused to let the matter rest there and launched an appeal. They would not accept this was a test case, which would have required them to meet the legal costs of the tax payer.

In a unanimous judgement given in December 2005, the Court of Appeal declared that the Inland Revenue were wrong in pursuing the claim for £42,000 in back tax.

Finally the House of Lords has now backed Mr Jones in his fight against the unfair tax demands by HM Revenue and Customs.

It is very rare for a case like this to reach the House of Lords but there were serious implications for the owners of 200,000 small companies and partnerships.

However, Mr Jones was supported throughout by the Professional Contractors Group, members of the public and the legal and accountancy professions, as well as organisations representing small businesses.

The Federation of Small Businesses (FSB) has welcomed the decision of the House of Lords in a family tax case that could have saddled small businesses with huge tax liabilities.

Bill Knox, FSB Taxation Chairman, said: “The HM Revenue and Customs’ conduct towards a family-run business in this case has been utterly shameful.”

“The UK small business community expects to be treated proportionately and fairly,” he said. “Hopefully HMRC will now realise this type of aggression towards honest taxpayers is unacceptable.”

The Treasury is expected to bring forward proposals for legislative changes affecting the tax position of married couples who own and run small businesses.

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