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Published: 15 December 2005
Arctic Systems win High Court Appeal
The Court of Appeal have found in favour of Geoff and Diana Jones of Arctic Systems in their appeal against the High Court`s ruling in favour of HM Revenue and Customs` interpretation of the s660a settlements legislation.
Announcing its decision this morning, the court ruled that the dividends paid to Mrs Jones did not arise under the settlement rules, as HMRC had claimed.
Published: 3/10/2005
VAT on employee fuel expenses
On March 10 2005, the European Court of Justice (ECJ) ruled that UK businesses were wrong to claim back VAT on their employees` fuel expenses. This may well cost UK businesses hundreds of millions of pounds a year in lost input tax.
Under existing UK law, employees usually get re-imbursed through an expense claim calculated on a cost per mile basis. The employer then qualifies for a VAT deduction on the VAT inclusive fuel element of the mileage payment.
The UK`s argument was that if costs are incurred for the taxable business purposes of a VAT registered business, the VAT should be deductible regardless of how payment for the expenses was made. However, the court has now concluded that the UK`s system contravenes EU law because the supply is not to the taxable person and the individual does not hold a valid VAT invoice.
This move will not affect the employees concerned unless companies reduce their mileage rates to reflect the lost VAT.
Published: 3/10/2005
Arctic Systems Limited (Jones v Garnett)
The above case was heard in the High Court in April 2005. It is on appeal and is not expected to be heard until at least January 2006. In the meantime, many small businesses, particularly those involving just a husband and wife, have been left unsure how to accurately complete their tax returns.
In the case, Mr and Mrs Jones ran a small IT company where Mr. Jones was the sole director. He was a higher rate taxpayer. She paid tax at a lower rate. They owned one share each in the company. They both took out a small salary and extracted the majority of funds by way of a dividend, which was split equally between them. HMRC successfully argued in the High Court that the dividends going to Mrs Jones could be reallocated under the settlements legislation to Mr. Jones and extra tax sought on them.