The proposals regarding "income shifting" arose from the Government's historic defeat in the Arctic Systems case, which was sponsored by PCG.

In 2003 the Inland Revenue (now HM Revenue and Customs) attempted to reinterpret the law retrospectively so as to penalise tens of thousands of joint and family-owned businesses set up legitimately and in line with official government advice.

In July 2007 the House of Lords ruled in the Arctic Systems case that HMRC’s interpretation was not valid in law. This remains the case: companies owned jointly by married couples using ordinary shares are not affected by the settlements legislation.

The Government immediately announced its intention to reverse the implications of this decision with new legislation.

HM Revenue & Customs' reinterpretation of S660A could have penalised tens of thousands of jointly owned enterprises, often set up by married couples who share the burdens of running their businesses, but who HMRC claimed were not entitled to share the rewards. This went against the will of Parliament when introducing the independent taxation of spouses. Because the attempted change was retrospective, businesses which had been set up in an entirely standard way, in line with prevailing practice and advice over many years, could have been in receipt of tax bills of around £40,000 covering six years.

HMRC's conduct during the Arctic Systems case
Parliamentary Questions tabled in October 2007 raise serious concerns about HMRC's conduct over the Arctic Systems case.

Guide to the Family Business Tax
Available exclusively to PCG members, this Guide includes a section on the remaining issues around S660A.

Analysis of House of Lords ruling
Provided by John Whiting of PricewaterhouseCoopers LLP on the day of the judgment.

Overview of House of Lords ruling
Issued by PCG on the day of the judgment

HMRC Guidance
Issued following the House of Lords judgment and advising on how HMRC will deal with similar investigations being kept open while the Arctic case was ongoing.

PCG Policy Briefing: S660A and Arctic Systems Ltd
Written before the House of Lords ruling.