Tax & Accounting News

Family company dividends case: HMRC seeks leave to appeal

13/01/2006

HM Revenue & Customs are to seek leave to appeal to the House of Lords in the Jones v Garnett ("Arctic Systems") test case, in which the Court of Appeal ruled against them and refused leave to appeal.

HMRC are maintaining that the structure, in which one spouse earned most of the company's income but the other spouse received 50% of the dividends, was not a 'normal commercial arrangement'.

Click here to read the HMRC statement.

It may be a few weeks before the House of Lords announces whether leave to appeal has been granted, so it is very unlikely that this will be known before the 2005 tax return submission deadline of 31 January 2006.

As the latest court decision is in favour of the taxpayer, other taxpayers whose affairs are exactly the same may prepare their returns on the basis that each spouse is assessable on their own dividend income. If circumstances are not the same as in Jones v Garnett, taxpayers will need to discuss the position with their tax adviser.

Click here to read the further advice issued by HMRC.

The UK accountancy and taxation professional bodies have also issued revised guidance. Where the taxpayer's position is the same as that in Jones v Garnett, it is recommended that each spouse reports their dividends in their own tax return, in line with the HMRC guidance. If the position is not the same as in Jones v Garnett, and the taxpayer requires certainty, tax returns should include a note disclosing the stance taken. If certainty is not required, and if it is considered that the stance taken in not following the Jones v Garnett decision is tenable, no note is required.

Click here for full details.

 

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