Family company tax case awaits Lords’ decision
The case about taxing dividends that were paid by a husband and wife company is due to reach the House of Lords in June, although it may be several weeks later before their Lordships publish their decision.
The Lords will have to rule whether HM Revenue & Customs (HMRC) was correct to tax a working husband on the dividends that his company, Arctic Systems Ltd, paid to his wife, who was a 50% shareholder but who played a much lesser role in the business than her husband.
Last year the Appeal Court decided in favour of the taxpayer, overturning the High Court’s verdict. HMRC has said that it intends to delay settlement of all enquiries into similar cases until the Lords have ruled. Where taxpayers go to the Commissioners to get an enquiry closed in accordance with the Appeal Court’s view of the law, HMRC will oppose the application claiming that the appeal to the Lords is reasonable grounds for not issuing a closure notice.
HMRC has also said that taxpayers are entitled to self assess or amend a self-assessment based on the Appeal Court decision. Of course HMRC might then open an enquiry.
Not all companies owned by married couples or civil partnerships operate in a similar way to Arctic Systems Ltd. Whichever side the Lords take, the decision is likely to leave questions about its application in other circumstances. You can be sure that if you run your business through a family company, we will advise you on how best to arrange your affairs once the Lords’ decision has become clear.