The case centres on a family-run business, Arctic Systems Ltd, which used dividends from the business to remunerate Geoff and Diana Jones, the shareholders. Despite a decisive ruling by the Court of Appeal in favour of the taxpayer and a refusal to grant leave to appeal to the House of Lords, HMRC used taxpayers’ money to continue its campaign in the Lords to extract money from the Jones’.

Bill Knox, FSB Taxation Chairman, said:

“HMRC’s conduct towards a family-run business in this case has been utterly shameful. Hounding hardworking small business owners in this way sullies the good name of HMRC and will not instil confidence in the UK small business community as a whole, which rightly expects to be treated proportionately and fairly by the tax authorities.

“The family tax arrangement that the Jones’ had in place has been around for years and for HMRC to suddenly decide to clamp down without warning was totally unjustified.

“We are very pleased with the House of Lords’ decision, which totally vindicates the Jones’ position. Hopefully HMRC will now realise this type of aggression towards honest taxpayers is unacceptable.”