July 2007

JONES V GARNETT (ARTIC SYSTEMS)

On Wednesday 25 July The House of Lords found in favour of Geoff Jones in this long running tax case against HM Revenue & Customs.

This case has revolved around the way the couple split their salary and dividend between them within the stucture of their company Artic Systems.

The ownership of the business was split between husband and wife and the wife was paid a low salary so she became a basic rate taxpayer. This left more money in the business which was distributed each year as dividends. Mrs Jones’s share of the profits were subject to less tax thereby minimising the couple’s overall tax bill. This sort of arrangement is a long established tax reduction method that has been accepted practice for almost 20 years.

As a result of the judgement HM Revenue & Customs have said: “This case has brought to light the need for the Government to ensure that there is greater clarity in the law regarding the tax treatment of arrangements used by some taxpayers to achieve an unfair advantage. The Government will therefore bring forward proposals for changes to legislation.”