Allowing tax arrangements such as those of Arctic Systems would mean introducing 'a new form of voluntary joint taxation,' the taxman has argued on the first day of the hearing at the Lords.
The case is one of the most contentious of recent years, with the profession up in arms over the treatment of Geoff and Diana Jones, whose tax setup involved paying Mr Jones a low salary and taking income as dividends.
Michael Furness, QC, acting for HMRC, told the panel of five law lords: 'Permitting such arrangements would be tantamount to facilitating, for those couples whose circumstances allowed them to take advantage of it, a new form of voluntary joint taxation,' The Independent reported.
The Revenue has pursued the case all the way to the Lords, pledging at least to pay its own costs on the case. Even though it seems to be clearly test case, HMRC has not pledged to pay the other side's costs, as is conventional.
'HMRC is wholly wrong, both morally and in law to penalise small businesses with a retrospective reinterpretation of tax law,' said Chris Bryce of the Professional Contractors' Group, which has helped fund the case.
'Geoff and Diana took on the risks and responsibilities of owning and running Arctic Systems together, and are entitled to share in the rewards together.'
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