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November 5, 2004 12:06 pm

Couple to ask for funds to fight tax ruling

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A husband and wife business team is taking the unusual step of appealing for public funds to help fight against a ruling that could lead to more than 100,000 family businesses having to pay £1bn in back dated tax.

Diana and Geoff Jones, owners of Arctic Systems, a Sussex information technology company, had hoped that the Inland Revenue would fund an appeal against a Special Commissioners ruling to clarify the law for small business owners.

The Professional Contractors Group, which funded an appeal to the Special Commissioners against a Revenue demand for £42,000 in back taxes, is asking members of the public to help finance an appeal to the High Court.

The case concerns the Revenue's use of legislation from the 1930s to clamp down on companies run by owner/managers where one spouse brings in most of the income but both share dividend payments equally.

The special commissioners, who act as an initial court of appeal on Revenue judgments, last month backed the Revenue’s claim that Arctic’s dividend payments did not accurately reflect the contributions to the company made by the husband and wife.

Ernst & Young, the accountants, said yesterday that an appeal to ther High Court stood a very good chance of succeeding, if the couple manages to raise the funds, because the Special Commissioners failed to follow the correct procedures.

The Arctic case was deadlocked – of the two Special Commissioners judging the case, Judith Powell found for the taxpayer and Dr Nuala Brice for the Revenue. Dr Brice, the presiding Commissioner, used her casting vote to decide the case for the Revenue.

“We believe this to be incorrect,” said said Anne Redston, tax partner at Ernst & Young. “The casting vote does not simply give one Commissioner two votes, so that her opinion automatically carries the day. If this were the case, there would never be any point in having two Commissioners, as one could always overrule the other.”

Ms Redston said that in previous cases where there has been a deadlock the casting vote has been exercised for the Revenue where tax relief was being sought, but for the taxpayer in appeals against Revenue assessments.

“Combined with the casting vote issue, the Revenue’s refusal to fund the appeal rubs salt into an already raw wound,” she said. “I am astonished that the Revenue considers that this case is not of significant interest and that the legislation is not in need of clarification.”

 

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