Tax & Accounting News

Taxpayer wins family company dividends case

15/12/2005

The Court of appeal has ruled in favour of the taxpayer in the Jones v Garnett case (otherwise known as Arctic Systems Ltd).

HM Revenue & Customs had argued that the arrangements under which the non-fee earning spouse received dividends, and the fee-earning spouse received a low salary, amounted to a settlement, as a result of which the dividend income should be assessed on the other spouse. The court held, however, that there were too many variables with regard to matters such as income, salaries and dividends for the arrangement to be a settlement.

Click here to read the full judgement.

It now only remains to be seen whether HMRC appeal to the House of Lords, and taxpayers who might be affected should, if possible, defer submitting self assessment returns until this is known.

If there is no appeal, taxpayers whose circumstances are similar can also arrange their affairs so that there are as many variables as possible, for example by having no formal employment contracts and no profit distribution policy or pre-arranged salary or dividend levels.

 

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