Arctic costs balloon in ‘test case’

The Professional Contractors Group will have to pay ‘tens of thousands’ more to take the Arctic Systems case to appeal. The group said last week that it planned to appeal the High Court ruling in the case, which threatened to set a precedent for thousands of family businesses.

Link: Arctic couple appeal against tax verdict

The High Court ruled recently that dividends from small IT consultancy Arctic Systems, paid to the lower-earning spouse, should be taxed at the rate of the higher earner. The Inland Revenue alleged the only reason Mr Jones was paid so little was so that a higher dividend could be paid to Mrs Jones, thus avoiding higher-rate tax charges on his income.

The government is not funding both sides of the case, as it does not believe that it is a test case. But Simon Juden of the PCG disagreed. ‘It is quite clearly a point that requires wider clarification,’ he said. The appeal will cost the PCG ‘tens of thousands more’, he said, and the PCG could also end up footing a similar bill for the Revenue’s costs.

Small family-owned businesses are closely following the case for indications of how best to conduct and report their own tax affairs. Some advisers have suggested the case could affect up to 200,000 businesses. The case is set to be heard in September. ‘Both parties believe they are right and, win or lose, either side could take the case to the European court to settle the issue,’ a PCG spokeswoman said last week.

A spokesman for the Revenue said the department did not comment on ‘individual cases’.