Nicolson, Chartered Accountants

49/50 Bayhead, Stornoway, Isle of Lewis HS1 2DZ

Section S660a - the "Arctic Systems" case

Anyone involved in running a small family limited company should have been well aware of the Arctic Systems case and the potential impacts on the Corporation tax position.

This is an extremely complex case, but in essence the Inland Revenue tried to claim that they could treat a wife's dividends from a limited company as being the husband's.  As a consequence, Higher Rate tax would be due, and this would have a potentially very expensive (and unforeseen) effect on many small companies.

The Court of Appeal in England has now decided that the Inland Revenue cannot do this, and husband and wife businesses can now breathe a sigh of relief. There are still some potential issues where a spouse does not work in the business, but as the Court have accepted that a spouse can provide help and support in many different ways, then it looks to be a very good and clear decision for spouses who actively work in the business.

Revised guidance on the implications of this case should be issued by the Inland Revenue soon.

For a review of the case click here.