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Revenue threatens tax judgement

By Paul Lewis
BBC Radio 4's Money Box

Mr Jones of Arctic Systems
Geoff Jones challenged a tax demand from the HMRC

The Revenue is trying to overturn a landmark court victory which would have cut the tax bills for an estimated 30,000 couples.

The announcement, made late on Friday night, will be a blow to family businesses where one partner does most of the work but the other is paid dividends from the company.

In December, the Court of Appeal ruled couples were free to make these financial arrangements which can cut their tax bill by thousands of pounds a year.

The test case was brought against Geoff and Diana Jones of Arctic Systems, who paid themselves salaries of 7,000 and 4,000, taking the remaining 60,000 of their company's profits as dividends.

The Revenue had tried to claw back the thousands of pounds in tax and National Insurance they saved by charging Mrs Jones the same higher rate of tax as her husband.

But the court ruled in December that the Revenue could not do that and the judges refused the Revenue leave to appeal against their decision.

Sudden dilemma

However, now the Revenue has said it will petition the House of Lords directly to seek leave to appeal.

If it succeeds, and then wins the appeal, it could cost the Mr and Mrs Jones and thousands of couples in the same position thousands of pounds a year.

The best advice is to go by the Court of Appeal judgement
John Whiting, PricewaterhouseCoopers
With the deadline for completing self-assessment tax returns just two weeks away, the Revenue's move gives all such couples a dilemma.

Do they follow the law as now declared by the Court of Appeal or wait to see what happens with the House of Lords?

John Whiting of PricewaterhouseCoopers told BBC Radio 4's Money Box programme that they should follow the recent court ruling.

"The best advice is to go by the Court of Appeal judgement. That is the law of the land.

"But make a note to that effect in the return and dare I say it, keep a bit of money aside, just in case the Revenue is finally successful.

"But it could be a little while before it is finally sorted."

BBC Radio 4's Money Box was broadcast on Saturday, 14 January, 2006, at 1204 GMT.

The programme will be repeated on Sunday, 15 January, 2006, at 2102 GMT

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