The Arctic Systems row will happen again on other issues and with other taxpayers, under the taxman’s new litigation strategy, a senior tax adviser has warned.

The taxman outlined a new approach to litigation last week. The rules outline what inspectors should do where there is a dispute over a point of law, but there is nothing to indicate what they should do in relation to an obscure area where HM Revenue & Customs has issued no guidance, Anne Redston of the CIoT said.

‘It would be good if the guidance included something to the effect that “if appropriate and clear guidance has not been given to taxpayers on the point at issue, this should be provided before any legal challenge is made, and cases should not be taken for years prior to the provision of that guidance”,’ said Redston.

The Arctic System tax battle was heard in just a day and a half in the House of Lords last week, despite being scheduled for three days.

HMRC is fighting the married couple through the courts over the way they split their salaries and dividend earned from their business.

The result is not expected to be known for six to eight weeks, with thousands of other husband-and-wife companies’ tax situations hanging on the outcome.

HMRC came out battling in the case, saying that allowing the situation to continue would be tantamount to admitting a system of ‘voluntary joint taxation’.

The case relates to historic legislation. The set-up is being challenged under settlement rules, which deal with circumstances where someone has given something away purely for tax reasons while effectively retaining it. The case has annoyed advisers since the tax authorities had never previously used the rules in such a case.

Chris Bryce, director of the Professional Contractors’ Group, warned against reading anything into the quick conclusion of the final leg of the tax battle through the courts.

‘I’m reasonably positive about the way the outcome will go, but can’t read into the hearing finishing early,’ said Bryce.

Redston said the law lords were ‘well informed about the ins and outs’ of the case, which sped up the process.

Redston said that if the judges decide the Jones’ tax affairs were set up in advance and designed to give something to the wife/husband, the law lords might then conclude that the couple were exempt of tax under gift exemption rules.

‘This would, in effect, narrow the tax arrangement rules, which HMRC could consider a partial victory, but allow husband and wife businesses with more beneficial tax treatment as fought for by the Joneses,’ she said.

‘HMRC is wholly wrong, both morally and in law to penalise small businesses with a retrospective reinterpretation of tax law,’ said Bryce.