Today’s decision by the House of Lords in the case of the Inland Revenue vs Arctic Systems is a victory for little family run businesses all over the UK.

Both the IR35 and S660 legislation, introduced in late 1990′s have made the process of running a small business far more complicated indeed.

IR35 was supposedly designed to stop permanent staff disguising their working relationship behind the facade of a limited company, in order to avoid paying PAYE and National Insurance.

However, as always the Inland Revenue applied the sledgehammer approach across the board; instead of looking at the overall workings of the limited company in question, the HMRC insists on applying the rules on a job-by-job basis. Now, genuine freelance contractors and other small consulting / design / IT businesses are forced to prove on a job-by-job basis that they are a genuine small business and therefore exempt from the legislation.

Likewise, the S660 legislation focuses on the relative roles within a limited company run by spouses and who is responsible for generating what portion of income. In practice, this is often impossible.

A large problem that both pieces of legislation suffer from, is that they are both open to very differing interpretations. Two different HMRC audits of the same company accounts/working arrangements could – by the HMRC’s own (if reluctant) admission – produce significantly different results.

Top marks to Geoff and Diana Jones who refused to let the HMRC run roughshod over their livelihood and fought the good fight…and WON!

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