IT might be summer but husband and wife businesses in and around Glasgow could be hit by an Arctic blast.

IT might be summer but husband and wife businesses in and around Glasgow could be hit by an Arctic blast.

The taxman is likely to be on their tail following a landmark judgment taken by the House of Lords.

The warning came today from Richard Green, an associate in the tax department of Glasgow chartered accountants and business advisors, Martin Aitken & Co.

He highlighted the ruling involving Arctic Systems, a computer consultancy business owned and run by Mr and Mrs Jones.

Mr Jones generated most of the income through his expertise while his wife did the bookkeeping and invoicing. She also handled the firm's administration and paperwork.

Both paid themselves small salaries. The rest of the profits were taken out of the business in the form of dividends and paid equally in accordance with their shareholdings.

But Richard said: "The problem for Mr & Mrs Jones was that HM Revenue and Customs challenged this setup.

"It thought because Mr Jones earned most of the money, this was simply a scheme to divert income from Mr to Mrs Jones.

"Her combined salary and dividends were more than a bookkeeper would expect for doing the same job and they said this was a scheme to avoid income tax.

"Mr Jones had no other income so the scheme allowed a substantial portion to be taxed at the basic rate of income tax, rather than higher rates, and saved the two Jones's a substantial amount of tax between them."

The Revenue applied an obscure part of the Taxes Acts to tax income from the husband as though it was his wife's income.

The couple won after appealing the case which eventually went to the House of Lords.

Richard insists couples can minimise the risk by pointing out: "Firstly, make sure that you can justify your spouse doing as much work as possible in your business.

"Second, keep what evidence you can to prove that they are physically present at the premises, and third list their duties to justify the dividends or profit share."

The Treasury with government backing plans to close what it sees as a "loophole" with Richard adding: "This is just another example of the Revenue making the tax system more complex."