How do you self assess? The six main UK representative bodies involved in tax (listed below) have issued an
updated guidance note to help tax advisers and their clients with their tax returns for the year ended 5 April 2005. This is to assist with self assessment in light of the Court of Appeal decision in the Arctic Systems Limited case (
Jones v Garnett), where the Court found in favour of the taxpayer but which is now being challenged by Her Majesty’s Revenue & Customs (HMRC).
Francesca Lagerberg, Chairman of the Tax Faculty of the ICAEW, notes:
“The disappointing decision by HMRC to petition for leave to appeal to the House of Lords maintains a sense of limbo for many small businesses, particularly those involving just a husband and wife, who will remain concerned about how to accurately complete their tax returns in relation to the settlements legislation.”
Anne Redston of the Chartered Institute of Taxation added:
“The recent Court of Appeal decision in the Arctic Systems case was strongly in favour of the taxpayer, but the spectre of an appeal by HMRC will worry small businesses. The guidance note issued today by all the main tax representative bodies is intended to help with this dilemma.”
Notes to Editors
The key tax representative bodies issuing the guidance are as follows:
- The Chartered Institute of Taxation (CIOT)
- The Tax Faculty of the Institute of Chartered Accountants in England & Wales (ICAEW)
- Association of Chartered Certified Accountants (ACCA)
- Institute of Chartered Accountants of Scotland (ICAS)
- Association of Taxation Technicians (ATT)
- Association of Accounting Technicians (AAT)
1. The case of Jones v Garnett [2005] STC 903 was heard in the High Court in April 2005 where the decision was for HMRC. It was then successfully appealed by the taxpayer in the Court of Appeal in December 2005. On 13 January 2006, HMRC announced it would be seeking leave to appeal to the House of Lords.
2. The case was concerned with the operation of the settlements legislation (formerly s660A, ICTA 1988 and since the latest Tax Law Rewrite Act it is now in Chapter 5 of Part 5 to the Income Tax (Trading and Other Income) Act 2005). In the case, Mr and Mrs Jones ran a small IT company where Mr Jones was the sole director. He was a higher rate taxpayer. She paid tax at a lower rate. They owned one share each in the company. They both took out a small salary and extracted the majority of funds by way of a dividend, which was of course split equally between them. HMRC successfully argued in the High Court that the dividends going to Mrs Jones could be reallocated under the settlements legislation to Mr Jones and extra tax sought upon them. This was emphatically overturned in the Court of Appeal who found for the taxpayer.
3. The operation of the settlements legislation has been a controversial issue with the tax representative bodies disagreeing with some aspects of HMRC’s interpretation of the rules. The attached guidance note sets out the issues relating to disclosure which all tax advisers and affected clients should consider where there is a chance that the settlements legislation applies.
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Simon Goldie
