Arctic High Court Judgement - Where Are We Now?

On 27 April 2005, Mr Justice Park delivered his judgement in the Arctic case in which he found in favour of the Inland Revenue. To give the appellant Mr Geoff Jones of Arctic Systems Limited additional time to consider a further and final appeal, Mr Justice Park granted an extended period of six weeks until 8 June 2005 for a further appeal to be lodged.

The Judge stressed that because Mr Jones took less than the 'market rate' as a salary, this constituted a beneficial gift as it allowed monies to be available to pay to Mrs Jones in the form of a dividend. This poses a virtually impossible question; what is 'market rate'? No doubt each of us will have our own definition as will the Revenue. We look forward to receiving some guidance in this and other matters following this judgement.

Perhaps another starting point could be value of the contribution of the 'subordinate contributor' and allocate the balance to the 'main contributor'.

If there is no appeal the Revenue will assess Mr Jones on the amount of dividends paid to Mrs Jones. There may be some recognition of the duties performed by Mrs Jones.

The Judge did however remark that, "...if Mr Jones' co-shareholder was not his wife but say his sister, he could not be taxed on her dividends".

Mr Justice Park did not consider any difference to the fact that Mrs Jones bought her share, rather than it being gifted, neither was her standing as a director or secretary considered relevant.

Anyone who feels that they are in a similar position to Mr and Mrs Jones should review their own arrangements and particularly the ratio of monies received from the business by either spouse. They may also wish to re-arrange their shareholding to reflect their individual contribution to the business. Qdos would be happy to review your particular arrangements and offer the appropriate advice.

Article by Carl Whittaker - Qdos Consulting

Qdos Consulting are experts in Settlements Legislation and are able to offer a detailed Compliance Review and an opinion on whether you would be successful if challenged by the Inland Revenue. The cost for this is only £150 pa (plus VAT).

If you are deemed to be non-compliant, you will be advised on the course of action to take.

Qdos are also able to offer TLC660a insurance cover against potential tax liabilities or professional representation insurance only if required.

A Compliance Review can also be backed up by a comprehensive insurance for yourself and your business against the consequences of a Revenue investigation into your status under the Section 660A regulations. The cost for this is £325 (inc. IPT).

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Posted 01/06/05

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