Arctic Systems win at Lords - victory for small businesses

The House of Lords has ruled in favour of Geoff and Diana Jones of Arctic Systems Ltd, and rejected HMRC’s attempt to introduce a tax hike for thousands of family businesses.

With the backing of the Professional Contractors Group, the Joneses have spent the past three years battling the Revenue’s efforts to reinterpret the law retrospectively and mount a tax raid on companies that are jointly owned by one revenue-earning partner and one non-earning partner.

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.”

PCG chairman David Ramsden commented: “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.

“I’d also like to pay tribute to Geoff and Diana Jones, who have conducted themselves with dignity throughout and battled on for the good of thousands of other small businesses, when others might have thrown in the towel and paid up.

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

Anne Redston, Chartered Institute of Taxation spokesperson, said:

“The CIOT is delighted that, after such a long battle, the House of Lords has confirmed that HM Revenue & Customs (HMRC) 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.”

If the decision had gone against Mr and Mrs Jones, many married couples would have faced a very large tax and NIC cost, going back over the last six years.

Bill Knox, FSB Taxation Chairman, said:

“HMRC’s conduct towards a family-run business in this case has been utterly shameful. Hounding hardworking small business owners in this way sullies the good name of HMRC and will not instil confidence in the UK small business community as a whole, which rightly expects to be treated proportionately and fairly by the tax authorities."