Following the decision in the Arctic Systems case HMRC have provided guidance on how tax returns are to be dealt with following the House of Lords’ decision.

Cases currently open

Any cases left open pending the outcome of the case will now be reviewed by HMRC and settled in line with the decision in the Arctic Systems case where the facts indicate that that is the appropriate outcome. The guidance indicates that the taxpayers will be dealt with in the same way as Mr and Mrs Jones where the spouse owns either ordinary shares in a company or an ordinary unlimited interest in a partnership.

2005/06

The guidance notes that these returns should have been submitted in line with the Court of Appeal decision, which was in favour of the taxpayer, so that no amendments should need to be made to these returns following the House of Lords’ decision.

2006/07

The deadline for submission of these returns is 31 January 2008 and the guidance states that they should be completed on the basis of the House of Lords’ decision.

Forthcoming legislation

Following the decision, the government announced its intention to legislate to prevent what they regard as the use of ‘non-commercial arrangements’ to divert income from one spouse to another. We will keep you up to date with developments.

Please contact us if you require further clarification of how this affects you.

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HMRC guidance