Taxing times as Law Lords consider Jones v Garnett
The Law Lords could deliver judgment before the end of July in the Arctic Systems case—Jones v Garnett—which could affect up to 340,000 small businesses.
The case concerns whether dividends paid by a company, Arctic Systems Ltd, to a working shareholder, Mrs Jones, consisted of income arising under a settlement as defined by s 660a(1) of the Income and Corporation Taxes Act 1988 (TA 1988) and so should be treated as the income of the company’s director and her husband, Mr Jones.
The couple set up a small IT company where Mr Jones was the sole director, and both spouses paid £1 for one share each in the company. Both took low salaries and received the balance of the company’s profits by dividend, which was split equally between them and which saved them tax. HM Revenue & Customs (HMRC) successfully argued in the High Court that the dividends going to Mrs Jones could be reallocated under settlements legislation to Mr Jones and extra tax sought upon them. This was overturned in the Court
