Arctic Systems: What happens now?

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Simon Sweetman, vice-chairman of the tax policy unit at the Federation of Small Businesses, gives his assessment of where businesses that may be affected by the High Court decision in Jones v Garnett (the 'Arctic Systems' case) go from here.

Will the case go to appeal?

It seems less and less likely that the case will go to the Court of Appeal, because the money is not there and HM Revenue and Customs is not prepared to waive its costs, as it sometimes does. It also seems unlikely that anyone else will have the resources to take a case to the Court of Appeal (or, given what the judge said about the importance of the Hawkins case, probably the House...

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07th Jun 2005 13:30

Tax Rate
Re the statement:- The argument is that now that settlements pay 40% income tax, the same as the highest rate, then in most cases the attribution to settlor rules are redundant

I assumed that settlements were just rolled in with all other income. Does this mean there is a separate tax rate for settlements and if so where can I find this on Revenue website?

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27th May 2005 12:03

Arctic Systems-disallowance of all less than market salaries for
I have a company owned 50% each by husband & wife. They both work full time (50hrs+ per week each in the business) and are the only directors. Their work is equally valuable. (One is in charge of Operations, the other Finance & Admin: they share marketing and strategy between them & have 160 employees.)
At present they only pay themselves £8,500 pa each as employees and take approx £30k each as dividends pa. I am not clear whether the failure, in this case, to pay market salary (which might be £60k each if they were employees of large organisations)can be attacked by the Revenue. Any guidance? It will be gratefully received.

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27th May 2005 13:21

Does Not apply
Stephen,

I do not think you need worry at all. The business you describe sounds analagous to Mr Justice Park's shop run by husband & wife. In any case, if they are already both have taxable income in all the years into the higher rate band then the Revenue have nothing to gain by re-allocating the income.

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27th May 2005 14:44

And therein is the crux
".... then the Revenue have nothing to gain by re-allocating the income..."

It's all about raising revenue. The "correct" amount of tax is irrelevent. It is now the "fair" amount of tax that is important.

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29th May 2005 08:37

"Most"
Forget "fair" or "correct". GB is after the "most" amount of tax he can get, but isn't that what taxation has been about since inception?????
What Gordon doesn't understand is that in order to function properly our business need "perks" which then go back into the economy. If the government take it all then dish it out as they see fit you have a disgruntled workforce.
I have always felt that GB motives were "right" however his methods have led to creative taxation which is just as "wrong" as tax avoidance.
I believe that if he carries on (and I'm sure he will) the black economy will prosper, especially in the construction industry.
Gordon, sqeeze an orange gently and you get all the juice, hit it with a fist and it goes all over the place - basic economics!!!!!!!!!!

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By 779840
31st May 2005 12:24

Wholly or substantially a right to income?
According to the revenue guidance posted on the web if the company has significant capital then 660 does not apply. What is meant by significant capital? Say for example that the company has capital of 60K and the non earning spouse has a dividend of 30K and owns 50% of the equity. Then the right to capital is the same as the right to income. This seems pretty significant to me. In fact I think that you could argue that a much smaller amount would degrade the meaning of the phrase 'wholly or substantially a right to income'. Any comments would be appreciated.

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By Anonymous
26th May 2005 19:49

what a mess........
If only sleeping dogs had been left to lie. This case has resulted in a change from the Revenue making a challenge in a handful of cases each year to one where thousands now have to self assess tax caught by S660A!!

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27th May 2005 09:54

Well......
This government is hungry for money. It has a serious spending habit that needs to be fed. It will take money where-ever it can find it without regard to the mess that it generates.

Creative re-interpretation of existing law seems a viable way to do this because it doesn't involve parliament and so doesn't hit the press before the event and can be sold as 'existing practice' after the event...

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