Jones v Garnett: Statement

HM Revenue & Customs (HMRC) have been granted leave to appeal to the House of Lords against the decision of the Court of Appeal in the case of Jones v Garnett (Arctic Systems Ltd.).

The Jones v Garnett case concerns arrangements involving a company called Arctic Systems Ltd. and relates to the settlements legislation. HMRC won the original case heard by the Special Commissioners. The appellant (Mr. Jones) subsequently appealed to the High Court, and HMRC also won this hearing. However, HMRC lost in the Court of Appeal and were denied leave to appeal to the House of Lords. HMRC petitioned the House of Lords for permission to appeal and this has now been granted.

The settlements legislation (Part 5, Chapter 5, of the Income Tax (Trading and Other Income) Act 2005) is a long standing piece of anti-avoidance legislation designed to prevent the avoidance of tax by, for example, a higher rate taxpayer transferring their income to someone liable at a lower rate. The legislation applies in a wide range of circumstances, including income from small companies and partnerships but it does not apply to income from those companies and partnerships that have normal commercial arrangements.

HMRC have issued further advice to taxpayers on how to file SA returns, and what to include, in light of the Court of Appeal’s decision.