Taxman clueless over Arctic Systems costs

by Mike on September 9, 2007

A short post today as it’s Sunday afternoon and it’s sunny outside :) I’m going to comment on an article by Accountancy Age of the same name over here.

I’m sure we all know about Geoff and Diana Jones. They run Arctic Systems, a small family-run business which is representative of many thousands more businesses across the UK. They won (several times), their tax rulings in the courts where HM Revenue & Customs attempted to have the earnings of both partners calculated as if it was all the sole earnings of Geoff Jones.

According to a recent Freedom of Information Act enquiry conducted by AccountancyAge, HM Revenue & Customs, admit to having never estimated the legal costs of the Arctic Systems Case.

The Artic Systems case has been one of the most contraversial tax cases of this decade, a tax case not just on Geoff and Diana, but on all small businesses owned by couples. The principal issue is that our Government see that if you are a married (or civil partnership) couple - operating in the same business – then you should pay more tax than if you were not. The case started in 2004, and it wasn’t until recently in July 2007, an appeal case by HMRC at the House of Lords lost by 5 votes to 0 in favour of Geoff and Diana. Google for “Section 660a” if you need to know more.

Geoff and Diana Jones
Geoff and Diana Jones, Arctic Systems

But what about the costs? In fighting these unfair tax cases (not all are unjust, but S660a and IR35 cases very often are) HM Revenue & Customs are spending our public tax money to fund these speculative cases. HM Revenue & Customs have a reputation for long, prolonged tax investigations on freelancers and small businesses. Tax investigations, which last often as long as three or four years, cause a great deal of stress and uncertainty, usually damage the businesses in the long term (HM Revenue & Custom dragging your clients through the mud), and at the end (assuming you don’t lose), HM Revenue & Customs simply “drop the case” and walk away. Paying nothing to compensate you for your loss of earnings and the immense stress.

This fresh new evidence that HM Revenue & Customs did not estimate the costs of the legal case tells us all that the way in which our public tax money is spent needs to change. Before embarking on tortuous bullying legal campaigns against husband and wife businesses, they should count the costs to the public purse – and at least – estimate the costs of the defendant.

If these cases were between two private individuals, the loser would be expected to pay the costs of both sides. Not so with HM Revenue & Customs.

Let’s also call to the Government to bring more visability to the tax system, and end the clear discrimination against couples who run businesses together.

What do you think? I would be very interested to hear your thoughts.

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