A blow has been dealt to the small business community with the news that the Revenue has won the Arctic Systems' Section 660 case at the Special Commissioners.
This was considered a landmark 'test case' and featured an IT company, Arctic Systems, set up and owned by Geoff Jones and his wife Diane.
The Revenue used an old piece of legislation and applied a controversial interpretation. This was criticised by many professional bodies as being both unfair and adding more confusion to the tax treatment of small businesses.
The outcome was a split decision with the casting vote of the senior Commissioner prevailing on the day. This alone perhaps gives cause for concern.
Without having the full details of the decision we are at this time unable to comment on the technical issues surrounding the case. We do hope to be in a position to comment and advise over the next few days when full details are released.
With an in-depth knowledge of these cases Qdos has always cautioned about taking cases to Special Commissioners, where, on balance a better result can be achieved through local settlement. The risks of appealing in this way are self evident, with the costs involved and, perhaps more relevant, the possibility of setting Revenue guidelines. The option of appealing this decision further raises the stakes still higher and must be considered carefully.
By way of example, following the Usetech Ltd case we have witnessed first hand an increased intransigence on the part of the Revenue in dealing with IR35 disputes, particularly in regard to involving end clients.
It is important therefore that arrangements are reviewed carefully before the advent of any Revenue enquiry. Over the next few days we will be formulating our strategies in respect of our consultancy services and insurance products in order to provide you with comprehensive protection and would be happy to assist you.
Editors note (Feb 2012):
The original settlements legislation dates back to the 1930s and was subsequently updated first in 1988, when it became the more familiar Section 660. It was changed again in 2005 when it was updated and rewritten into its current form as Section 624 of the Income Tax (Trading and Other Income) Act (ITTOIA) 2005. See more information on the current settlements legislation.